nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒07‒18
fifteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. Fraudulent Democracy: A Dynamic Ordinal Game Approach By Moyouwou, Issofa; Pongou, Roland; Tchantcho, Bertrand
  2. Ghost seats in the Basque Parliament By Laruelle, Annick; Ibarzabal Laka, Nora
  3. Public Education and Pensions in Democracy: A Political Economy Theory By Lancia, Francesco; Russo, Alessia
  4. Means Testing versus Basic Income: The (Lack of) Political Support for a Universal Allowance By Cremer, Helmuth; Roeder, Kerstin
  5. Networked Politics: Political Cycles and Instability under Social Influences By Diffo Lambo, Lawrence; Pongou, Roland; Tchantcho, Bertrand; Wambo, Pierre
  6. The effects of political competition on rural land: Evidence from Pakistan: By Kosec, Katrina; Haider, Hamza S.; Spielman, David J.; Zaidi, Fatima
  7. Partially Binding Platforms: Campaign Promises vis-a-vis Cost of Betrayal By Yasushi Asako
  8. The political economy of financial crisis policy By Mícheál Oâ??Keeffe; Alessio Terzi
  9. The political economy of renewable energy policies in Germany and the EU By Strunz, Sebastian; Gawel, Erik; Lehmann, Paul
  10. On Two-Period Committee Voting: Why Straw Polls Should Have Consequences By Tim Julius Frommeyer
  11. The Economic Legacy of Warfare: Evidence from Urban Europe By Mark Dincecco; Massimiliano Gaetano Onorato
  12. Mining and Local Corruption in Africa By Kotsadam, Andreas; Olsen, Eivind Hammersmark; Knutsen, Carl Henrik; Wig, Tore
  13. Lobbying for carbon permits in Europe By Julien HANOTEAU
  14. Economic and Political Networks and Firm Openness: Evidence from Indonesia By SHIMAMOTO Daichi; TODO Yasuyuki
  15. Resource Discovery and Conflict in Africa: What Do the Data Show? By Rabah Arezki; Sambit Bhattacharyya; Nemera Mamo

  1. By: Moyouwou, Issofa; Pongou, Roland; Tchantcho, Bertrand
    Abstract: We propose a model of political competition and stability in nominally democratic societies characterized by fraudulent elections. In each election, an opposition leader is pitted against the leader in power. If the latter wins, he remains in power, which automatically makes him the incumbent candidate in the next election as there are no term limits. If he loses, there is an exogenously positive probability that he will steal the election. We model voter forward-looking behavior, defining a new solution concept. We then examine the existence, popularity, and welfare properties of equilibrium leaders, these being leaders who would remain in power indefinitely without stealing elections. We find that equilibrium leaders always exist. However, they are generally unpopular, and may be inefficient. We identify three types of conditions under which equilibrium leaders are efficient. First, efficiency is achieved under any constitutional arrangement if and only if there are at most four competing leaders. Second, when there are more than four competing leaders, efficiency is achieved if and only if the prevailing political system is an oligarchy, which means that political power rests with a unique minimal coalition. Third, for a very large class of preferences that strictly includes the class of single-peaked preferences, equilibrium leaders are always efficient and popular regardless of the level of political competition. The analysis implies that an excessive number of competing politicians, perhaps due to a high level of ethnic fragmentation, may lead to political failure by favoring the emergence of a ruling leader who is able to persist in power forever without stealing elections, despite being inefficient and unpopular.
    Keywords: Fraudulent democracy, farsightedness, efficiency, popularity, naiveté, political failure, fragmentation
    JEL: C73 D72 D73 K4 O1
    Date: 2015–07–02
  2. By: Laruelle, Annick; Ibarzabal Laka, Nora
    Abstract: In elections voters have generally four options: to abstain, to cast a blank vote, to cast a null vote, or to vote for a candidate or party. This last option is a positive expression of support, while the other three options reflect lack of interest, or dissatisfaction with the parties or the political system. However only votes for parties or candidates are taken into account in the apportionment method. In particular the number of seats allocated to parties remains constant even if the number of non votes (i.e. blank votes, null votes or abstention) is very large. This paper proposes to treat the non votes as a party in the apportionment method and to leave empty the corresponding seats. These empty seats are referred to as "ghost seats". How this would affect the decision-making is quantified in terms of power indices. We apply this proposal to a case study:the regional Parliament of the Basque Autonomous Community (Spain) from 1980 till 2012.
    Keywords: voting, abstention, blanck votes, null votes
    JEL: C71 D72
    Date: 2015–04–24
  3. By: Lancia, Francesco (University of Vienna); Russo, Alessia (Dept. of Economics, University of Oslo)
    Abstract: This paper presents a dynamic politico-economic theory of fiscal policy to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations, since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium can reproduce qualitative and quantitative features of intergenerational fiscal policies in modern economies.
    Keywords: Intergenerational conflict; Markov perfect equilibrium; pension; public education; repeated voting; small open economy
    JEL: D72 E62 H23 H30 H53
    Date: 2015–01–30
  4. By: Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg)
    Abstract: This paper studies the political economy of a basic income (BI) versus a means tested welfare scheme. We show in a very simple setting that if society votes on the type of system, its generosity as well as the "severity" of means testing (if any), a BI system could only emerge in the political equilibrium under very strong and empirically implausible conditions. Instead, the political process leads to a means tested system. The necessity to draw political support does affect the design of the system, but it only implies that means testing becomes less severe so that benefits are extended also to the middle classes. However, a fully universal system is rejected by a majority.
    Keywords: basic income, means testing, political support
    JEL: D3 D7 H2 H5
    Date: 2015–07
  5. By: Diffo Lambo, Lawrence; Pongou, Roland; Tchantcho, Bertrand; Wambo, Pierre
    Abstract: Media, opinion leaders, co-ethnics, family members, and friends influence our political decisions. The ways in which these influences affect political cycles and (in)stability has been understudied. We propose a model of a networked political economy, where agents' choices are partly determined by the opinions of the individuals with whom they are connected in a fixed influence network. The model features two types of individuals: ideological individuals who never change their views and who seek to influence the rest of the society; and non-ideological individuals who have no political allegiance and do not influence anybody, but who can be influenced by ideological individuals with whom they are connected. We show that influence networks increase political turnout and cause non-ideological individuals who are subject to antagonistic influences to keep changing their political views. This in turn increases political cycles and instability in two ways: (1) by reducing the number of stable and popular political leaders; and (2) by worsening the tradeoff between political competition and the existence of a stable leader. We uncover a necessary and sufficient condition that characterizes all of the political technologies and network structures that guarantee political stability. This condition introduces a preference-blind stability index, which maps each pair of a constitution and an influence network into the maximum number of competing political leaders that a society can afford while remaining stable regardless of the extent of preference heterogeneity in its population. Our findings have testable implications for different societies. They shed light on the network origins of political cycles in two-party systems. They also imply that individualist societies are more politically stable than collectivist societies and societies organized around ethnic groups or characterized by a high level of homophilous behavior and influences. For ethnic democracies, we quantify the exact tradeoff between political competition and stability, and show that ethnic fragmentation increases stability. This latter finding further provides a rationale for using the "divide and rule" strategy to maintain political power. Finally, we find that cliques and multi-layer cliques maximize the competition-stability tradeoff, whereas star networks, lines and rings minimize it.
    Keywords: Political cycles, instability, influence networks, homophily, ethnic democracy, competition-stability tradeoff.
    JEL: C0 C7 D7 D8 D85 H0 O1
    Date: 2015–06–01
  6. By: Kosec, Katrina; Haider, Hamza S.; Spielman, David J.; Zaidi, Fatima
    Abstract: Can more vigorous political competition significantly raise rural land values, or contribute to more robust land rental markets? Exploiting exogenous variation in the national popularity of Pakistan’s political parties during the 2008 elections, we show that provincial assembly constituencies with greater competition between political parties had significantly higher land values and more active land rental markets four years later. A standard deviation decrease in a Herfindahl–Hirschman Index (HHI) of political concentration is associated with a 36 percent increase in land values, an 8 percentage point increase in the share of landowners renting out land, and an additional 4 percentage points of each landowner’s land being rented out. Land values appear to increase most among the poorest households, suggesting that benefits are greatest for those with the fewest resources to influence policy. Exploring potential causal mechanisms, we show that political competition leads to more stable and businessfriendly governance and institutions, better amenities, and greater provision of publicly provided goods. The effect of political competition on security is ambiguous, suggesting that political competition may decrease security along some dimensions and increase it along others.
    Keywords: prices, land markets, rural areas, governance, agricultural policies, political competition, rural governance, government performance, public goods,
    Date: 2015
  7. By: Yasushi Asako (School of Political Science and Economics, Waseda University)
    Abstract: This study examines and models the e?ects of partially binding campaign platforms in a political competition. Here, a candidate who implements a policy that di?ers from the platform must pay a cost of betrayal, which increases with the size of the discrepancy. I also analyze endogenous decisions by citizens to run for an election. In particular, the model is able to show two implications that previous frameworks have had di¢ culty with. First, candidates with di?erent characteristics have di?erent probabilities of winning an election. Second, even knowing that he/she will lose an election, a candidate will still run, hoping to make an opponent?s policy approach his/her own policy.
    Keywords: political competition, endogenous candidates, campaign promises
    JEL: C72 D72
    Date: 2014–08
  8. By: Mícheál Oâ??Keeffe; Alessio Terzi
    Abstract: Government intervention to stabilise financial systems in times of banking crises ultimately involves political decisions. This paper sheds light on how certain political variables influence policy choices during banking crises and hence have an impact on fiscal outlays. We employ cross-country econometric evidence from all crisis episodes in the period 1970-2011 to examine the impact political and party systems have on the fiscal cost of financial sector intervention. Governments in presidential systems are associated with lower fiscal costs of crisis management because they are less likely to use costly bank guarantees, thus reducing the exposure of the state to significant contingent and direct fiscal liabilities. Consistent with these findings we find further evidence that these governments are less likely to use bank recapitalisation and more likely to impose losses on depositors. 
    Date: 2015–07
  9. By: Strunz, Sebastian; Gawel, Erik; Lehmann, Paul
    Abstract: In this paper, we employ a public choice perspective to analyze the development of policies for renewable energy sources (RES) in the EU in general and in Germany more specifically. In doing so, we explain the main characteristics of current RES policies in the EU by reference to the selfinterest driven motivations of voters, stakeholders and political actors. One important puzzle, which we address, is the following: How could effective RES-policies be introduced against the political opposition of fossil-fuel interest groups in the past? Via analyzing the German example in more detail, we show how over time a self-reinforcing interplay of ideological and financial RES support has emerged. Moreover, we demonstrate that observed specific design choices for EU RES policies, such as largely riskless remuneration schemes, high degrees of technology differentiation and decentralized decision-making across Member States, can be traced back to politicians' need to balance a variety of partly opposing interests. A major benefit of the presented analysis is that it provides a realistic assessment of the challenges for RES policy reform - any reform effort critically depends on its ability to balance stakeholder interests.
    Keywords: lobbying,public choice,renewable energy sources,subsidies,support policies
    JEL: D72 D78 H25 K32 Q42
    Date: 2015
  10. By: Tim Julius Frommeyer
    Abstract: We consider a committee voting setup with two rounds of voting where committee members, who possess private information about the state of the world, have to make a binary decision. We investigate incentives for truthful revelation of their information in the first voting period. Coughlan (2000) shows that members reveal their information in a straw poll only if their preferences are in fact homogeneous. By taking costs of time into account, we demonstrate that committees have strictly higher incentives to reveal information if a decision can be made for high levels of consensus in the straw poll already. In such scenarios, members of all homogeneous and some heterogeneous juries are strictly better off when the requirement for early decisions is chosen carefully.
    Keywords: Communication, Committees, Voting
    JEL: D72 D82 D83
    Date: 2015–04
  11. By: Mark Dincecco (University of Michigan); Massimiliano Gaetano Onorato (IMT Lucca Institute for Advanced Studies)
    Abstract: We show new evidence that the economic legacy of historical warfare persists to the present. Warfare was a key feature of European history. We argue that cities were safe harbors from war threats. War-related urbanization, in turn, had positive consequences for long-run development. We geocode the locations of more than 600 conflicts fought in Europe between 1300 and 1799. To measure urban economic activity, we gather satellite image data on light intensity at night for more than 500 cities between 2000 and 2010. We find a positive, significant, and robust relationship between historical conflict exposure and urban economic activity today. We find that human capital formation and local political representation are two channels through which the consequences of historical warfare are transmitted through time. Our results highlight the military origins of Europe’s prosperous urban belt.
    Keywords: Warfare, Cities, Political and Economic Development, Europe
    JEL: C20 O10 N40 N90 P48 R11
    Date: 2015–07
  12. By: Kotsadam, Andreas (Dept. of Economics, University of Oslo); Olsen, Eivind Hammersmark (Dept. of Economics, University of Oslo); Knutsen, Carl Henrik (Department of Political Science, University of Oslo); Wig, Tore (Department of Political Science, University of Oslo)
    Abstract: We investigate whether mining affects local-level corruption in Africa. Several cross-country analyses report that natural resource production and wealth have adverse effects on political institutions, for instance by increasing corruption, whereas other country-level studies show no evidence of such "political resource curses". These studies face well-known endogeneity and other methodological issues, and employing alternative designs and micro-level data would allow for drawing stronger inferences. Hence, we connect 90,000 survey respondents in four Afrobarometer survey waves to spatial data on about 500 industrial mines. Using a difference-in-differences strategy, we find evidence that mining increases bribe payments. Mines are initially located in less corrupt areas, but mining areas turn more corrupt after mines open and actively produce. A closer study of South Africa - using even more precise spatial matching of mines and survey respondents - corroborates the continent-wide results. Hence, mineral production is, indeed, a "curse" to local institutions.
    Keywords: Resource curse; corruption; minerals; mining
    JEL: D73 Q32 Q33
    Date: 2015–04–30
  13. By: Julien HANOTEAU (KEDGE Business School and Université d’Aix-Marseille, GREQAM)
    Abstract: Using cross-sector and cross-country data, this paper evidences that rent seeking influenced the allocation of CO2 emission permits in the two first phases of the European emissions trading scheme. Industry lobbies effectively used the ‘job loss’ and ‘competitiveness’ arguments, as unemployment proxy variables significantly impacted the allocation in both phases, and carbon intensity influenced it in the second phase. The countries that adopted a partial auction scheme also gave relatively more permits and in particular to the politically more powerful sectors. This suggests a compensation mechanism and supports the assumption of a political tradeoff between the quantity of permits issued and the decision between free grant and auction. It also confirms that the initial allocation is not neutral in the presence of special interest lobbying.
    Keywords: Lobbying, Emission trading, Permits allocation
    JEL: D72 Q58 C10
    Date: 2014–03–01
  14. By: SHIMAMOTO Daichi; TODO Yasuyuki
    Abstract: Using firm-level dataset from the manufacturing sector in Indonesia, we examine how firms' ties with the government in receiving rents and with other firms and their managers' trust toward foreigners and views of globalization are correlated with each other. We find that firms' strong political ties are associated positively with the level of managers' trust toward domestic citizens and the number of domestic buyers and suppliers and negatively with their level of trust toward foreign nationals. In turn, managers' trust toward foreign nationals and firms' transactions with foreign firms are positively correlated with each other, and trust and business networks within the country also show a positive correlation. When managers are more trusting of domestic citizens or when firms transact more with domestic firms, managers are more likely to have a negative view of globalization, incorporating such factors as the foreign ownership of firms and free trade. The results suggest a vicious cycle between the political ties of local firms and protectionist views and policies against globalization, which leads to economic stagnation due to a lack of diffusion of knowledge from abroad. This mechanism may explain why middle-income countries experience economic stagnation and cannot escape the "middle-income trap."
    Date: 2015–07
  15. By: Rabah Arezki; Sambit Bhattacharyya; Nemera Mamo
    Abstract: The empirical relationship between natural resources and conflict in Africa is not very well understood. Using a novel geocoded dataset on resource discovery and conflict we are able to construct a quasi-natural experiment to explore the causal effect of (giant and major) oil and mineral discoveries on conflict in Africa at the grid level corresponding to a spatial resolution of 0.5 x 0.5 degree covering the period 1946 to 2008. Contrary to conventional wisdom, we find no evidence of natural resources triggering conflict in Africa after controlling for grid-specific fixed factors and time varying common shocks. Resource discovery appears to have improved local income measured by nightlights which could be reducing the conflict likelihood. We observe little or no heterogeneity in the relationship across resource type, size of discovery, pre and post conclusion of the cold war, and institutional quality. The relationship remains unchanged at the regional and national levels.
    Keywords: Resource discovery; Conflict onset; Conflict incidence; Conflict intensity
    JEL: D72 O11
    Date: 2015

This nep-pol issue is ©2015 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.