nep-pol New Economics Papers
on Positive Political Economics
Issue of 2018‒09‒10
fourteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Political Economy of Patrons, Brokers, and Voters By Gallego, J; Li, C; Wantchekon, L
  2. The Political Economy of Public Debt: A Laboratory Study By Battaglini, Marco; Nunnari, Salvatore; Palfrey, Thomas R
  3. Office-Holding Premia and Representative Democracy By Jan Auerbach
  4. To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil By Brollo, Fernanda; Forquesato, Pedro; Gozzi, Juan Carlos
  5. The Politics of Aging and Retirement: Evidence from Swiss Referenda By Piera Bello; Vincenzo Galasso
  6. Migration, Political Institutions, and Social Networks By Catia Batista; Julia Seither; Pedro C. Vicente
  7. Legislative Bargaining and Partisan Delegation By Thomas Choate; John A Weymark; Alan E. Wiseman
  8. Voting on Multiple Issues: What to Put on the Ballot? By Alex Gershkov; Benny Moldovanu; Xianwen Shi
  9. Utilitarianism, Voting and the Redistribution of Income By Usher, Dan
  10. The Economic Effects of Electoral Rules: Evidence from Unemployment Benefits By Galasso, Vincenzo; Nunnari, Salvatore
  11. Who Voted for Brexit? Individual and Regional Data Combined By Eleonora Alabrese; Sascha Becker; Thiemo Fetzer; Dennis Novy
  12. Race and Gender Affinities in Voting: Experimental Evidence By Penney, Jeffrey; Tolley, Erin; Goodyear-Grant, Elizabeth
  13. Persistence of Power: Repeated Multilateral Bargaining By Agranov, Marina; Cotton, Christopher; Tergiman, Chloe
  14. The Impact of Politics in Policy Reforms By S.A.R, Tharanga

  1. By: Gallego, J; Li, C; Wantchekon, L
    Abstract: Formal models of political clientelism tend to focus on vote buying, the exchange of cash and goods for votes on election day. However, other components of the phenomenon, such as patronage, the exchange of public jobs and contracts for political support, are more important in order to understand the pervasive consequences of clientelism. We develop a game-theoretic model of patronage, in which candidates must decide between broker-mediated electoral strategies versus grassroots campaigns. Our model shows that patronage is more likely when public offices are relatively more valuable for brokers, a condition that is typical of institutional configurations that foster corruption. Moreover, setups that constrain candidates from funding grassroots campaigns and weaken ties between politicians and citizens make broker-mediated campaigns more likely. We show that patronage negatively affects citizens’ welfare, as winning brokers end up being appointed to public office, undermining the quality of civil servants and public goods provision.
    Keywords: Patronage, Clientelism, Corruption, Agency, Grassroots Campaigns
    Date: 2018–08–27
  2. By: Battaglini, Marco; Nunnari, Salvatore; Palfrey, Thomas R
    Abstract: This paper reports the results from a laboratory experiment designed to study political distortions in the accumulation of public debt. A legislature bargains over the levels of a public good and of district specific transfers in two periods. The legislature can issue or purchase risk-free bonds in the first period and the level of public debt creates a dynamic linkage across policymaking periods. In line with the theoretical predictions, we find that public policies are inefficient and efficiency is increasing in the size of the majority requirement, with higher investment in public goods and lower debt associated with larger majority requirements. Debt is lower when the probability of a negative shock to the economy in the second period is higher indicating that even in a political equilibrium debt is used to smooth consumption and to insure against political uncertainty. Finally, also in line with the theoretical predictions, we find that dynamic distortions are eliminated independently of the voting rule when the first period majority can commit to a policy for the second period. The experiment however highlights two phenomena that are surprising in terms of standard theory and have not been previously documented. First, balancing the budget in each period is a focal point, leading to lower distortions than predicted. Second, higher majority requirements induce significant delays in reaching an agreement.
    Keywords: Bargaining; Dynamic Political Economy; Laboratory experiments; public debt
    JEL: C78 C92 D71 D72 H41 H54
    Date: 2018–08
  3. By: Jan Auerbach (Department of Economics, University of Exeter)
    Abstract: I consider a policy issue stylized as redistribution in a representative democracy in which holding o ce o ers an income premium. Predominance of high earners in the legislature likely implies that not a single lawmaker shares the policy preferences of lower- income citizens, because it arises in only two ways. First, chance favors high-income candidates while in the majority of districts, the strict majority of political candidates are lower-income citizens, which seems counterfactual. Second, high o ce-holding premia induce legislators from all backgrounds to oppose redistribution once in o ce. Either legislators are recruited from an elite, or some forget where they came from.
    Keywords: Representative Democracy, Legislature, Legislators, Representatives, Repre- sentation, Policy Preferences, Citizen-Candidates, O ce-Holding Premia, Redistribution.
    JEL: D72
    Date: 2018
  4. By: Brollo, Fernanda; Forquesato, Pedro; Gozzi, Juan Carlos
    Abstract: We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.
    Keywords: Financial Economics
    Date: 2017–10–10
  5. By: Piera Bello; Vincenzo Galasso
    Abstract: Aging creates financial troubles for PAYG pension systems, since the share of retirees to workers increases. An often advocated policy response is to increase retirement age. Ironically, however, the political support for this policy may actually be hindered by population aging. Using Swiss administrative voting data at municipal level (and individual survey data) from pension reforms referenda, we show in fact that individuals close to retirement tend to oppose policies that postpone retirement, whereas young and elderly individuals are more favorable. The current process of population aging, and the associated increase in the size of the cohort of individuals close to retirement, may partially explain why a pension reform, which increased retirement age for females, was approved in two referenda in 1995 and 1998, while a reform, which proposed a similar increase in female retirement age, was defeated in a 2017 referendum.
    Keywords: social security reforms, voting behavior, retirement age
    JEL: H55 D72 J18
    Date: 2018
  6. By: Catia Batista (Universidade Nova de Lisboa, CReAM, IZA and NOVAFRICA); Julia Seither (Universidade Nova de Lisboa, University of California at Berkeley, and NOVAFRICA); Pedro C. Vicente (Universidade Nova de Lisboa, BREAD, and NOVAFRICA)
    Abstract: What is the role of international migrants and, specifically, migrant networks in shaping political attitudes and behavior in migrant sending countries? Our theoretical framework proposes that migration might change individual social identities and thus stimulate intrinsic motivation for political participation, while it may also improve knowledge about better quality political institutions. Hence, international migration might increase political awareness and participation both by migrants and by other individuals in their networks. To test this hypothesis, we use detailed data on different migrant networks (geographic, kinship, and chatting networks), as well as several different measures of political participation and electoral knowledge (self-reports, behavioral, and actual voting measures). These data were purposely collected around the time of the 2009 elections in Mozambique, a country with substantial emigration to neighboring countries – especially South Africa - and with one of the lowest political participation rates in the region. The empirical results show that the number of migrants an individual is in close contact with via regular chatting significantly increases political participation of residents in that village – more so than family links to migrants. Our findings are consistent with both improved knowledge about political processes and increased intrinsic motivation for political participation being transmitted through migrant networks. These results are robust to controlling for self-selection into migration as well as endogenous network formation. Our work is relevant for the many contexts of South-South migration where both countries of origin and destination are recent democracies. It shows that even in this context there may be domestic gains arising from international emigration.
    Keywords: International migration, social networks, political participation, information, diffusion of political norms, governance
    JEL: D72 D83 F22 O15
    Date: 2018–08
  7. By: Thomas Choate (Graduate School of Business, Stanford University); John A Weymark (Department of Economics, Vanderbilt University); Alan E. Wiseman (Department of Political Science, Vanderbilt University)
    Abstract: We use an extension of the Baron–Ferejohn model of legislative bargaining in which there are three legislators, two of whom have partisan ties, to analyze the division of a fixed political resource in a majoritarian legislature. A legislator's preferences depend on the shares that he and any copartisan receive. We ask if there are circumstances under which a partisan legislator is willing to delegate proposal-making authority to a party leader so as to take advantage of the special proposal rights accorded by the legislature to this office rather than retaining equal-recognition proposal rights for himself. We show that this is the case only if (i) the leader's proposal recognition probability is larger than the probability that one of the partisans is recognized when the legislators act independently, (ii) partisan affiliation is sufficiently strong, and (iii) the legislators are sufficiently impatient. The relevance of this result for Aldrich and Rohde's conditional party government thesis and Krehbiel's First Congressional Parties Paradox are considered.
    Keywords: Baron–Ferejohn legislative bargaining, political partisanship, proposal delegation, strong political party
    JEL: F4
    Date: 2018–08–24
  8. By: Alex Gershkov; Benny Moldovanu; Xianwen Shi
    Abstract: We study a multi-dimensional collective decision problem under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes -- the issues that are voted upon -- lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If the marginals are identical (but not necessarily independent), then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with I.I.D. marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency. Finally, we generalize our method and some of our insights to preferences derived from distance functions based on inner products.
    Keywords: Multidimensional Voting, Mechanism Design, Rotation, Strategy-Proof Mechanisms, Budgeting Procedure
    JEL: D82 D72 D78
    Date: 2018–09–05
  9. By: Usher, Dan
    Abstract: Utilitarianism can be misplaced or ambiguous. As a prescription for individual behaviour, the injunction to seek the greatest good for the greatest number is misplaced because there remains a domain of life where, within the bounds of law and custom, one is free to act as selfishly or as altruistically as one pleases. As a criterion for responsible government, it is ambiguous because there is no universally-recognized perception of the greatest good; people have different perceptions which can only be reconciled by compromise or by voting. The greatest number must be of citizens alive today, but governments may be vicariously concerned about people in other countries or yet to be born, in so far as citizens today have such concerns and are prepared to sacrifice for the benefit of others. The greatest good for the greatest number has no rival as a criterion for government, but it is vague nonetheless. Utilitarian ambiguity is inherited in any attempt to combine the ordinary measure of economic growth with changes in the distribution of income on a common scale.
    Keywords: Financial Economics, Public Economics
    Date: 2017–07
  10. By: Galasso, Vincenzo; Nunnari, Salvatore
    Abstract: This paper provides a novel test of the link from electoral rules to economic policies. We focus on unemployment benefits because their classification as a broad or targeted transfer may vary - over time and across countries - according to the geographical dispersion of unemployed citizens, the main beneficiaries of the program. A simple theoretical model delivers unambiguous predictions on the interaction between electoral institutions and the unemployment rate in contestable and safe districts: electoral incentives induce more generous unemployment benefits in majoritarian than in proportional systems if and only if the unemployment rate is higher in contestable than in safe districts. We test this prediction using a novel dataset with information on electoral competitiveness and unemployment rates at district level, and different measures of unemployment benefit generosity for 16 OECD countries between 1980 and 2011. The empirical analysis strongly supports the theoretical predictions.
    Keywords: Electoral Rules; Swing Districts; Unemployment Benefits
    JEL: D72 D78 H53 J65
    Date: 2018–07
  11. By: Eleonora Alabrese; Sascha Becker; Thiemo Fetzer; Dennis Novy
    Abstract: Previous analyses of the 2016 Brexit referendum used region-level data or small samples based on polling data. The former might be subject to ecological fallacy and the latter might suffer from small-sample bias. We use individual-level data on thousands of respondents in Understanding Society, the UK’s largest household survey, which includes the EU referendum question. We find that voting Leave is associated with older age, white ethnicity, low educational attainment, infrequent use of smartphones and the internet, receiving benefits, adverse health and low life satisfaction. These results coincide with corresponding patterns at the aggregate level of voting areas. We therefore do not find evidence of ecological fallacy. In addition, we show that prediction accuracy is geographically heterogeneous across UK regions, with strongly pro-Leave and strongly pro-Remain areas easier to predict. We also show that among individuals with similar socioeconomic characteristics, Labour supporters are more likely to support Remain while Conservative supporters are more likely to support Leave.
    Keywords: aggregation, ecological fallacy, European Union, populism, referendum, UK
    JEL: D72 I10 N44 R20 Z13
    Date: 2018
  12. By: Penney, Jeffrey; Tolley, Erin; Goodyear-Grant, Elizabeth
    Abstract: We analyze the results of a large-scale experiment wherein subjects participate in a hypothetical primary election and must choose between two fictional candidates who vary by sex and race. We find evidence of affnities along these dimensions in voting behaviour. A number of phenomena regarding these affnities and their interactions are detailed and explored. We find that they compete with each other on the basis of race and gender. Neuroeconomic metrics suggest that people who vote for own race candidates tend to rely more on heuristics than those who do not.
    Keywords: Financial Economics, Public Economics
    Date: 2016–10
  13. By: Agranov, Marina; Cotton, Christopher; Tergiman, Chloe
    Abstract: In a variety of settings, budgets are set by a committee that interacts repeatedly over many budget cycles. To capture this, we study a model of repeated multilateral bargaining by a budget committee. Our focus is on the transition of agenda setting power from one cycle to the next, and how such considerations affect bargaining and coalition formation over time. Specifically, we compare a rule that approximates the budget process in many parliamentary democracies in which a vote of confidence is traditionally attached to each budget proposal, and a rule that approximates the budget process in congressional systems where party leadership must maintain the support of a majority of other legislators to hold onto power. As is standard in the literature, we use stationary equilibrium refinements to make predictions about behavior in our environments. In a controlled laboratory experiment, we find no support for the standard equilibrium refinements used in the literature. In sharp contrast to the theoretical predictions, in the experiment, both rules give rise to stable and persistent coalitions in terms of coalition size, identity, and shares of coalition partners and feature high persistence of agenda-setter power. Our results call into question the validity of restricting attention to history independent strategies in dynamic bargaining games. We conclude by showing that weakening the standard equilibria concepts to allow players to condition on one piece of history (the most recent deviator) is enough to generate equilibria which are consistent with outcomes and behavior observed in the experiments.
    Keywords: Financial Economics, Political Economy
    Date: 2016–12
  14. By: S.A.R, Tharanga
    Abstract: 1. Abstract The economic policy reforms play an important role to increase the economic growth of the countries. The economic policy reforms can perform in both national and sectoral levels. There are two main types of economic reforms at national level including stabilisation policies and structural adjustments policies. In addition to that, economic policy reforms may happen in any sector like agriculture, industry and trade. Due to economic reforms create the distributional effects in the society, it creates both losers and winners, in addition to producing of delayed outcomes. This distributional effect might create a political volatility in the society. Therefore, political authorities are indifferent between the self-interest and uncertainty of their tenure of the office in next period. If the country suffers from political instability, the risk of losing the power of existing government is high and then, the policy reforms will be delayed. In addition to that, the literature highlights the importance of government credibility for the successful economic reforms. Some governments support for the redistribution policies, and some are not. It is entirely depended on the ideological polarisation. Therefore, for the successful policy changes, formulation of politically sound economic policies and timely implementation of those policies are essential.
    Keywords: economic policy reforms, redistribution, political stability
    JEL: O1
    Date: 2018–08–31

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