nep-pol New Economics Papers
on Positive Political Economics
Issue of 2015‒10‒04
25 papers chosen by
Eugene Beaulieu
University of Calgary

  1. Mobile Politicians: Opportunistic Career Moves and Moral Hazard By Duha T. Altindag; Naci Mocan
  2. How Lobbying Affects Representation: Results for Majority-Elected Politicians By David Stadelmann; Marco Portmann; Reiner Eichenberger
  3. Political Incentives and State Subsidy Allocation: Evidence from Hungarian Municipalities By Balázs Murakozy; Almos Telegdy
  4. Electoral Uncertainty, Income Inequality and the Middle Class By Mitra, Anirban; Mitra, Shabana
  5. Electoral Competition with Rationally Inattentive Voters By Filip Matejka; Guido Tabellini
  6. Mandated Political Representation and Redistribution By Mitra, Anirban
  7. THE POLITICAL ECONOMY OF LIBERAL DEMOCRACY By Mukand, Sharun; Rodrik, Dani author-workplace-Name: Harvard University
  8. Lobbying and the political economy of pricing car access to downtown commercial districts By DE BORGER, Bruno; RUSSO, Antonio
  9. Preferential versus Multilateral Trade Liberalization and the Role of Political Economy By Halis Murat Yildiz; Andrey Stoyanov
  10. Does politician’s experience matter? Evidence from Peruvian local governments By Fernando M. Aragon; Ricardo Pique
  11. The political economy of public transport pricing and supply decisions By DE BORGER, Bruno; PROOST, Stef
  12. The Political Economy of FDI Flow into Developing Countries: Does the Depth of International Trade Agreements Matter? By Arslan Tariq Rana; Mazen Kebewar
  13. A Fine Rule From a Brutish World? An Experiment on Endogenous Punishment Institution and Trust By H. Sun; M. Bigoni
  14. Is the Democratisation Process Responsive to Remittance Flows? Evidence from Bangladesh By Gazi M. Hassan; Shafiqur Rahman
  15. The Political Economy of the Essential Air Service Program By Joshua C. Hall; Amanda Ross; Christopher Yencha
  16. Precolonial centralisation, foreign aid and modern state capacity in Africa By Broich T.; Szirmai A.; Thomsson K.M.
  17. Should I double park or should I go? The effect of political ideology on collective action problems By Antonis Adam; Andreas C. Drichoutis; Maria Georgoula; Pantelis Kammas
  18. Oral democracy and women?s oratory competency in Indian village assemblies : a qualitative analysis By Sanyal,Paromita; Rao,Vijayendra; Prabhakar,Umang
  19. Civil service recruitment in Comoros : a case of political clientelism in a decentralized state By Rose,Jonathan; Gowthaman,Balachandran
  20. Institutional and Political Determinants of Private Participation in Infrastructure By Marian Moszoro; Gonzalo Araya; Fernanda Ruiz-Nuñez; Jordan Schwartz
  21. Dynamic Agenda Setting By Ying Chen; Hulya Eraslan
  22. Optimal Wealth Taxation: Redistribution and Political Economy By Ivan Werning
  23. Inducing political action by workers By DE BORGER, Bruno; GLAZER, Amihai
  24. Opportunities for Cooperation in Removing Prohibitive Trade Barriers By David R. DeRemer
  25. The Impact of Redistribution Mechanisms in the Vote with the Wallet Game: Experimental Results By Leonardo Becchetti; Vittorio Pelligra; Francesco Salustri

  1. By: Duha T. Altindag (Auburn University); Naci Mocan (Louisiana State University, NBER and IZA)
    Abstract: We exploit the randomness generated by a seat allocation mechanism utilized in Parliamentary elections that determines those politicians who get elected from a given district by a small margin, and those who lose. Using detailed information on personal attributes of more than 2,000 elected Members of the Parliament (MPs) and the votes received by each political party in every district and each of the five consecutive Parliamentary elections in Turkey between 1991 and 2011, we show that elected MPs are more likely to switch parties after an election if they faced electoral uncertainty and experienced a narrowly-won victory. The tendency to switch parties goes up as it becomes more lucrative to hold the post of MP. The impact of election uncertainty on party-switching is greater for younger MPs, and for those who are less educated. The propensity to switch due to uncertainty is higher if the MP is a member of the governing party, but only if the seat is valuable (if the majority of the party in the Parliament is slim). Politicians switch parties after an election to improve their ex-ante re-election probability in the following election. Although switching parties during a legislative session (between elections) for personal career concerns creates moral hazard, we find that party-switching MPs are more likely to get elected in the next election. These results point to forward-looking opportunistic behavior of politicians regarding their strategy to win future elections, and they indicate that politicians switch parties primarily for career concerns and for financial benefits that are associated with longer tenure in the Parliament. The results also signify that competition between political parties continues after the election, in the form of gaining seats in the Parliament post- election by transferring elected representatives of competing parties. This constitutes another dimension of the political agency problem.
    Date: 2015–09
  2. By: David Stadelmann; Marco Portmann; Reiner Eichenberger
    Abstract: Combining referendum results with parliamentary votes of proportionally-elected politicians of the Swiss Lower House of Parliament, Giger and Klüver (American Journal of Political Science, forthcoming) find that sectional and cause interest groups affect the quality of political representation. We extend their analysis to a new dataset of majority-elected politicians of the Upper House. Our results show that sectional and cause groups do not affect defection of politicians from their constituents. This suggests that the electoral system moderates the influence of interest groups on political representation.
    Keywords: Interest groups; representation; referenda; MP defection; electoral systems
    Date: 2015–09
  3. By: Balázs Murakozy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Almos Telegdy (National Bank of Hungary and Central European University)
    Abstract: Using application-level data on successful and rejected applications for the European Union’s Structural and Cohesion Funds between 2004 and 2012 in Hungary, we study which grant types are susceptible to political manipulation and how politicians achieve this goal. Using township fixed-effect estimators to attenuate the simultaneity bias between municipality characteristics and political affiliation, we find that townships with a mayor endorsed by the governing parties obtain 10 percent higher grant value per capita. This effect varies widely by grant attributes: it is of 16-19 percent when the applicant is a public entity or the project’s purpose is construction so it is visible to voters and thus may bring about electoral benefits. For private applications and non-construction grants, where electoral gains are likely to be limited, the estimated effect is zero. Decomposing the township alignment effect into grant application effects (application intensity and the average value of grant) and grant decision effects (grant success rate and proportion of grant value received) reveals that both margins play a role in the political manipulation of grant distribution. When analyzing the effect of grants on votes, we show that voters indeed reward construction and public projects.
    Keywords: Redistributive politics; Political alignment; European Structural Funds, Hungary
    JEL: D72 D78 H77
    Date: 2015–06
  4. By: Mitra, Anirban; Mitra, Shabana
    Abstract: We investigate how increased electoral competition — by influencing the equilibrium policies of competing parties — affects the income distribution in society. Our model is embedded in a standard probabilistic voting setup where parties compete at two stages: (i) they allocate resources across various districts and (ii) then, for each district, they divide the resources among the different constituent groups. We show that an increase in electoral competition in a district results in a tendency towards equalization of incomes therein. We check for these relationships using data from the Indian national elections which are combined with household-level consumption expenditure data rounds from NSSO (1987-88 and 2004-05) to yield a panel of Indian districts. We find that districts which have experienced tight elections exhibit lower inequality and polarization which indicates a larger "middle class".
    Keywords: Income distribution, polarization, political economy, targeting.
    JEL: D72 D78 O20
    Date: 2015–04
  5. By: Filip Matejka; Guido Tabellini
    Abstract: This paper studies how voters optimally allocate costly attention in a model of probabilistic voting. The equilibrium solves a modified social planning problem that reflects voters’ choice of attention. Voters are more attentive when their stakes are higher, when their cost of information is lower and prior uncertainty is higher. We explore the implications of this in a variety of applications. In equilibrium, extremist voters are more influential and public goods are under-provided. The analysis also yields predictions about the equilibrium pattern of information, and about policy divergence by two opportunistic candidates. Endogenous attention can lead to multiple equilibria, explaining how poor voters in developing countries can be politically empowered by welfare programs .
    Date: 2015
  6. By: Mitra, Anirban
    Abstract: Mandated political representation for minorities involves earmarking certain electoral districts where only minority–group candidates are permitted to contest. Such quotas have been implemented in India for certain social groups and for women, although gender quotas in the legislature are popular in several other countries. This paper builds a political–economy model to analyze the effect of such affirmative action on redistribution in equilibrium. Our model predicts that, in situations where the minority–group is economically disadvantaged and where voters favor candidates from their own group, such a quota actually reduces transfers to poorer groups. Moreover, redistribution in reserved districts leads to a rise in within–(minority) group inequality.
    Keywords: Affirmative action, income distribution, political economy
    JEL: D72 D78 O20
    Date: 2015–07
  7. By: Mukand, Sharun (University of Warwick); Rodrik, Dani author-workplace-Name: Harvard University
    Abstract: We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.
    Keywords: civil rights, political rights
    Date: 2015
  8. By: DE BORGER, Bruno; RUSSO, Antonio
    Abstract: We develop a positive theory of pricing car access (by parking fees or cordon tolls) to downtown commercial districts. The model accounts for the special interests of downtown retailers and competing superstores at the edge of the city, and studies how lobbying by both groups shapes the government’s policy. We find that downtown retailers typically have steeper lobbying contribution schedules than superstores, which induces the government to underprice central roads and parking spaces. This result is strengthened if some consumers visit both downtown and edge of town retailers. The presence of an alternative travel mode (e.g. public transport) does not weaken downtown retailers’ incentives to oppose car tariffs. Finally, extending the model to allow for lobbying by residents within the downtown retail district we find that residents may lobby for higher or lower parking fees, depending on their relative concern for the vitality of the central district. As a consequence, depending on parameter values, the outcome of lobbying may produce car fees below or above first-best levels. We argue that our results are in line with empirical observations.
    Keywords: Parking, Road pricing, Lobbying, Retailers, Superstores
    JEL: D72 H23 D43 R41
    Date: 2015–05
  9. By: Halis Murat Yildiz (Department of Economics, Ryerson University, Toronto, Canada); Andrey Stoyanov (Department of Economics, York University, Toronto, Canada)
    Abstract: In this paper we analyze the e¤ect of the freedom to pursue preferential trade liberalization, permitted by Article XXIV of the GATT, on country?'s incentives to participate in multilateral negotiations and on feasibility of global free trade. We present a model, in which countries choose whether to participate in preferential or multilateral trade agreements under political pressures from domestic special interest groups. We show that heterogeneity in political preferences across countries plays an important role in determining the relative merits of preferential and multilateral approaches to trade liberalization. On one hand, the opportunity to liberalize preferentially may be necessary to induce countries with strong political motivations to participate in multilateral free trade negotiations. On the other hand, when countries share similar political preferences, multilateral free trade that would have been politically supported otherwise becomes unattainable if countries can pursue preferential liberalization.
    Keywords: Free Trade Agreements, Multilateralism, Political Economy, Coalition-proof Nash Equilibrium
    JEL: F12 F13 C72
    Date: 2015–09
  10. By: Fernando M. Aragon (Simon Fraser University); Ricardo Pique (Northwestern University)
    Abstract: How important for government performance is the on-the-job experience of politicians? This paper examines this question using the case of mayors in Peruvian municipalities and a sharp regression discontinuity design. We find evidence that experience has a significant, although small, effect on spending composition and coverage of some public services, such as electricity. There is, however, no significant effect on other measures of government policies, such as total spending, local taxes, or public investment. This lack of effect may reflect quick learning-by-doing or lack of electoral incentives for re-elected politicians. We find, for instance, that differences in technical capacity between rookie and experienced politicians disappear after few years and that, despite not facing term limits, experienced politicians are less likely to run, and win, the re-election. These findings challenge the view that politician’s on-the-job experience is important, and weaken arguments against term limits based on the need to retain experienced politicians.
    JEL: D73 J24
    Date: 2015–08
  11. By: DE BORGER, Bruno; PROOST, Stef
    Abstract: This paper studies the political economy of public transport pricing and quality decisions in a hypothetical two-region federation. In each region there are two types of people: people not owning a car using only public transport, and car owners that demand both public transport and car trips. Each group may be a majority in the region and may also travel in the other region. Under regional decision-making, the political process may result in very low public transport fares, even if car owners are a large majority of the population. Cost recovery always improves with the share of outside users. Second, imposing a zero deficit constraint on regional public transport operators implements the second-best welfare optimum. Third, decentralized decision making leads to higher fares and better cost recovery. Our findings are consistent with very large public transport subsidies in Europe, and with the tendency towards decentralization of public transport policy-making.
    Keywords: Public transport pricing, Tax competition, Federalism
    JEL: H23 D62 R41 R48
    Date: 2015–05
  12. By: Arslan Tariq Rana (LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans); Mazen Kebewar (Laboratoire d'Economie d'Orléans - LEO - Laboratoire d'économie d'Orleans - CNRS - UO - Université d'Orléans)
    Abstract: There is considerable debate whether the domestic political institutions (specifically, the country’s level of democracy) of the host developing country toward foreign investors are effective in establishing the credibility of commitments are still underway, researchers have also analyzed the effect of international institutions such as (GATT-WTO) membership and Bilateral Investment treaties (BIT) in their role of establishing the credibility of commitment to attract foreign investments. In addition, most recent studies have examined the effect of International Trade Agreements (TAs) on FDI flows as they contain separate investment chapters and dispute settlement mechanism, thus providing confidence to investor regarding the security of their investments. We argue that there are qualitative differences among various types of trade agreements. Full-fledged trade agreements (FTAs-CUs) provide credibility of commitments to foreign investors whereas the partial scope agreements (PSA) are not sufficient in providing credibility. Moreover, the level of democracy in the host country conditions the effect of FTAs-CUs and not in the case of PSAs. This paper analyses the impact of heterogeneous TAs, and their interaction with domestic institutions, on FDI inflows. Statistical analyses for 122 developing countries from 1970 to 2005 support this argument. The method adopted relies on fixed effects estimator which is robust to control endogeneity on a large panel dataset. The strict exogeneity of results by using a method suggested by Baier and Bergstrand (2007) and no feedback effect found in sample. The results state that (1) The conclusion of FTAs-CUs attract FDI inflows into the developing countries significantly whereas PSAs are insignificant (2) FTAs-CUs are complementary to democratic regime whereas the conditional effect of PSA with democracy on levels of FDI inflows is insignificant.
    Keywords: Foreign direct investment, free trade agreements, partial scope agreements, domestic institutions.
    Date: 2014
  13. By: H. Sun; M. Bigoni
    Abstract: By means of a laboratory experiment, we study the impact of the endogenous adoption of a collective punishment mechanism within a one-shot binary trust game. The experiment comprises three games. In the first one, the only equilibrium strategy is not to trust, and not to reciprocate. In the second we exogenously introduce a sanctioning rule that imposes on untrustworthy second-movers a penalty proportional to the number of those who reciprocate trust. This generates a second equilibrium where everybody trusts and reciprocates. In the third game, the collective punishment mechanism is adopted through majority-voting. In line with the theory, we find that the exogenous introduction of the punishment mechanism significantly increases trustworthiness, and to a lesser extent also trust. However, in the third game the majority of subjects vote against it: subjects seem to be unable to endogenously adopt an institution which, when exogenously imposed, proves to be efficiency enhancing.
    JEL: C72 C92 D72
    Date: 2015–09
  14. By: Gazi M. Hassan (University of Waikato); Shafiqur Rahman (University of Oregon)
    Abstract: This paper examines how remittances relate to democratisation process in Bangladesh. Using Structural VAR (SVAR) methods, we are able to compensate for the endogeneity issue. While remittances respond to innovations in the macro-political variables, remittances also have important impact on these variables. Our results build a synergy between two opposing findings in the political science literature which find on one hand that remittances stabilise autocracies and also, on the other hand that it fosters the prospect of democratisation. We show that a shock in remittances will have a negative but transitory effect on democracy. Initially there will be a bout of autocratic episodes which will be
    Keywords: remittances; democratisation; structural VAR (SVAR)
    JEL: O10 O15 F22
    Date: 2015–09–21
  15. By: Joshua C. Hall (West Virginia University, Department of Economics); Amanda Ross (West Virginia University, Department of Economics); Christopher Yencha (West Virginia University, Department of Economics)
    Abstract: We find that congressional influences affect the amount of airport subsidies that a congressional district receives from the Essential Air Service (EAS) program. The EAS program was passed with the goal of helping to continue commercial air service to rural communities following the deregulation of the airline industry. Using subsidy data from 1998-2014, we find strong evidence that subsidies are higher in districts having congressional representation on the House Transportation Committee. Representation on the House Appropriations Committee is also associated with higher subsidies. Our empirical results, combined with news reports, are consistent with the EAS serving private as well as public interests.
    Keywords: congressional dominance, deregulation, airports
    JEL: D73 L93
    Date: 2015–06
  16. By: Broich T.; Szirmai A.; Thomsson K.M. (UNU-MERIT)
    Abstract: In this paper, we empirically explore the determinants of bureaucratic capacity in contemporary Africa. We connect the aid-governance literature with the historical, political economy and anthropological literature on African state formation. Our Ordinary Least Squares OLS results show that there is a positive and statistically significant relationship between precolonial centralisation and bureaucratic quality in Africa from the mid-1990s onwards. Before the mid-1990s there is no such relationship. We also find that the often negative and statistically significant effect of aid dependence on bureaucratic capacity disappears, once we control for precolonial centralisation. The OLS results survive a set of robustness tests, including the addition of several control variables and instrumental variable estimation using a variety of instruments suggested in previous research. As the colonial period is slowly fading, the influence of precolonial political institutions on modern state capacity is reasserting itself. Our results provide further evidence for the importance of precolonial centralisation in our understanding of present day economic and political developments on the continent.
    Keywords: Foreign Aid; Structure and Scope of Government: General; Economic History: Government, War, Law, International Relations, and Regulation: Africa; Oceania; Macroeconomic Analyses of Economic Development; Economywide Country Studies: Africa; Economic Sociology; Economic Anthropology; Social and Economic Stratification;
    JEL: F35 H10 N47 O11 O55 Z13
    Date: 2015
  17. By: Antonis Adam (Department of Economics, University of Ioannina,); Andreas C. Drichoutis (Department of Agricultural Economics and Rural Development, Agricultural University of Athens); Maria Georgoula (Department of Economics, University of Ioannina,); Pantelis Kammas (Department of Economics, University of Ioannina,)
    Abstract: Collective action problems, such as double parking behavior, are pervasive in everyday life. This paper presents the results from a field survey that was carried out at one of the main and busiest streets of the city of Ioannina in Greece, in order to investigate the effect of political ideology on double parking behavior. We find that individuals placing themselves either on the extreme Left or the extreme Right on a [0-10] political spectrum, are characterized by increased propensity of double parking behavior. Taking into account that both the extreme Left and the extreme Right Greek parties are strongly in favor of state intervention, our empirical fndings could be read as follows. Subjects that believe in the superiority of state intervention rely heavier on incentives and constraints provided by the law and therefore in the absence of an effective monitoring mechanism they fail to internalize the social cost of their actions. In contrast, subjects that are in favor of decentralized market solutions, take into account the social impact of their actions even in the absence of a strong monitoring state mechanism.
    Keywords: Collective Action; Political Ideology; Political Behavior
    JEL: H23 H41 C93
    Date: 2015
  18. By: Sanyal,Paromita; Rao,Vijayendra; Prabhakar,Umang
    Abstract: In democracies, innovative political institutions have opened up scope for direct public participation often in the form of talk: citizens talking to the state and mutual talk among citizens on matters concerning community development. A prominent example is the Indian gram sabha, or village assembly, which occurs in a highly stratified context. This paper undertakes a talk-centered analysis of the gram sabha with a focus on examining the oral participation of women in general and women affiliated with microcredit self-help groups who have access to an associational life. The qualitative analysis of 255 gram sabha transcripts from four South Indian states finds that women associated with microcredit self-help groups employ a wider variety of narrative styles and utilize a more multilayered structure to convey their messages compared with all women taken together. Thus, the difference is not so much in the numerical instances of talking or in the types of issues raised, but rather in the quality of participation. The paper makes an important theoretical contribution by proposing the concept of oral democracy as an alternative to deliberative democracy, and urges an analytical focus on the oral or oratory competency of subordinated groups as they participate in these important institutions.
    Keywords: Parliamentary Government,Access to Finance,National Governance,Governance Indicators,Primary Education
    Date: 2015–09–21
  19. By: Rose,Jonathan; Gowthaman,Balachandran
    Abstract: Professional civil service recruitment is a core component of governance for development, as it is necessary for ensuring the capacity of civil servants, service delivery, fiscal sustainability, and proper salary management. Through an ambitious mixed method approach, this study seeks to provide a political economy analysis of civil service recruitment in Comoros?a fragile and decentralized state with a relatively large portion of spending on government salaries. More specifically, it aims to explain the recent dramatic increases in the number of civil servants in Comoros. The paper presents three main findings from the analysis. First, in 2010, elections at the national and local levels were associated with the largest recruitment in the past decade, due in part to the interplay of informal institutions such as political clientelism with the current public financial management system. Second, the institutions involved in recruitment are not permanent; they are evolving with the balance of power between the national and island governments. Third, civil service recruitment respects qualification standards.
    Keywords: Parliamentary Government,Access to Finance,Government Diagnostic Capacity Building,Tertiary Education,Public Sector Corruption&Anticorruption Measures
    Date: 2015–09–30
  20. By: Marian Moszoro; Gonzalo Araya; Fernanda Ruiz-Nuñez; Jordan Schwartz
    Abstract: We assembled a large panel of project-level technical and financial data and country-level economic, institutional, political, and governance variables to assess the determinants of private financing of infrastructure in emerging markets and developing economies. Controlling for economic characteristics, we find that overall private participation of infrastructure financing increases with freedom from corruption, rule of law, quality of regulations, and decreases with court disputes. We provide plausible explanations of deviations from this pattern when data is disaggregated at the sectoral level. We also found that legal systems—types of democracy or dictatorship—do not play a role in whether the private sector invests in infrastructure. Our results do not vary when controlling for income inequality and across quartiles of experience, country wealth, and wealth per capita. The study shows that upstream “enabling” institutions, policies, and regulations and sector economics need to be addressed simultaneously to facilitate private infrastructure investment financing.
    Keywords: corruption, bureaucracy, regulation, rule of law
    JEL: D73 H54 L33 L51 R42
    Date: 2014–10
  21. By: Ying Chen (Department of Economics, Johns Hopkins University); Hulya Eraslan (Department of Economics, Rice University)
    Abstract: A party can address only a limited number of issues when in power. What issues to address - the party's agenda - has dynamic implications because it affects what issues will be addressed in the future. We analyze a model in which the incumbent in each period addresses one issue among several issues and the remaining issues roll over to the next period. We identify strategic manipulations in the forms of waiting for the moment, seizing the moment, steering, and preemption depending on how power fluctuates. We discuss efficiency implications of these strategic manipulations.
    Keywords: agenda setting; multi-issue bargaining; waiting for the moment; seizing the moment; steering; preemption.
    JEL: C78 D72 D78
    Date: 2015–09
  22. By: Ivan Werning (MIT)
    Abstract: Slides for plenary talk delivered at the annual meeting of the Society for Economic Dynamics.
    Date: 2014
  23. By: DE BORGER, Bruno; GLAZER, Amihai
    Abstract: A firm aiming to influence a governmental policy may benefit from political action by its stakeholders, such as workers. This paper studies the behavior of such a firm, showing that workers will have a greater incentive to engage in costly political activity against the governmental policy the greater their number and the higher the wage. The firm may therefore profit from paying above- market wages and from hiring what might appear to be an inefficiently large number of workers. And because unions may overcome free-rider problems of uncoordinated political effort, a firm may favor unionization, or be less opposed to unionization than it would otherwise be. The results of this paper can also explain why firms may little reduce wages in a recession, and why the higher wages paid by unionized firms do not reduce survival rates of these firms.
    Keywords: Political actions, Union behavior, Wage and employment policies
    JEL: D21 J31 J51 L51
    Date: 2015–05
  24. By: David R. DeRemer (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: Much potential for trade liberalization exists in industries and markets with trade barriers that are prohibitive for all or many firms. In standard political economic theories of trade policy, observed prohibitive barriers must be globally optimal according to static government preferences, leaving no possibility for a trade agreement. This paper shows that for prohibitive policies in imperfectly competitive markets, a trade agreement can still play a role even without any changes in governments' policy preferences. Theory can then further identify market characteristics for which liberalization is most likely to be feasible. To illustrate the simplest case, we consider a two-country model with firms engaged in Cournot competition in segmented markets. For plausible ranges of political weights on firm profits, there is a role for a trade agreement in eliminating prohibitive trade barriers. We then consider how the potential for cooperation varies with trade costs and competition. Industries with more firm heterogeneity have greater potential for cooperation, provided that the lower productivity firms are sufficiently competitive. The implications of these results are discussed for negotiations involving either developing country exporters or services trade, two areas in which prohibitive trade barriers remain important.
    Keywords: trade agreements, Cournot competition, political economy of trade policy
    JEL: F12 F13 F15
    Date: 2015–06
  25. By: Leonardo Becchetti (University of Rome Tor Vergata); Vittorio Pelligra (University of Cagliari, CRENoS); Francesco Salustri (DEDI, University of Rome "Tor Vergata")
    Abstract: We use the Vote-with-the-Wallet game (VWG) to model socially or environmentally responsible consumption, an increasingly relevant but still under-researched phenomenon. Based on a theoretical model outlining game equilibria and the parametric interval of the related multiplayer prisoners’ dilemma (PD) we evaluate with a controlled lab experiment players’ behavior in the game and test the effects of an ex post redistribution mechanism between defectors and cooperators. Our findings document that the redistribution mechanism interrupts cooperation decay and stabilizes the share of cooperators at a level significantly higher, even though inferior to the Nash equilibrium.
    Keywords: vote with the wallet, prisoner’s dilemma, lab experiment
    JEL: C72 C73 C91 M14
    Date: 2015–10–02

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