nep-pol New Economics Papers
on Positive Political Economics
Issue of 2019‒06‒10
twenty papers chosen by
Eugene Beaulieu
University of Calgary

  1. Intertemporal Evidence on the Strategy of Populism By Gloria Gennaro; Giampaolo Lecce; Massimo Morelli
  2. Combining the third vote with traditional elections By Tanguiane, Andranick S.
  3. Primaries, Strategic Voters and Heterogenous Valences By Shino Takayama; Yuki Tamura; Terence Yeo
  4. Political Economy of Reform and Regulation in the Electricity Sector of Sub-Saharan Africa By Imam, M.; Jamasb, T.; Llorca, M.
  5. Hurricanes, Climate Change Policies and Electoral Accountability By Gagliarducci, Stefano; Paserman, M. Daniele; Patacchini, Eleonora
  6. The Economic Analysis of Populism. A Selective Review of the Literature By Emilio Ocampo
  7. Resource Transfers to Local Governments: Political Manipulation and Household Responses in West Bengal By Pranab Bardhan; Sandip Mitra; Dilip Mookherjee; Anusha Nath
  8. Firm-Level Political Risk: Measurement and Effects By Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
  9. Heuristics in Multi-Winner Approval Voting By Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
  10. The rise of populism and the crisis of globalisation: Brexit, Trump and beyond By Cox, Michael
  11. Essays in corporate finance, political economy, and competition By Neretina, Ekaterina
  12. Fake Experts By Patrick Lahr; Justus Winkelmann
  13. Trust in Government in Times of Crisis: A Quasi-Experiment During the Two World Wars By Ahmed Skali; David Stadelmann und Benno Torgle
  14. The dynamics of political myths and ideologies By Apolte, Thomas; Müller, Julia
  15. Anti-Elite Politics and Emotional Reactions to Socio-Economic Problems. Experimental Evidence on 'Pocketbook Anger' from France, Germany, and the United States By Marx, Paul
  16. Social Ties and the Selection of China’s Political Elite By Raymond Fisman; Jing Shi; Yongxiang Wang; Weixing Wu
  17. Experimental Evidence on Cooperation, Political Affiliation, and Group Size By Helénsdotter, Ronja
  18. The Tortuga disease: the perverse effects of illicit foreign capital By Jablonski, Ryan S.; Oliver, Steven; Hastings, Justin V.
  19. Terrorism and social media: global evidence By Simplice A. Asongu; Stella-Maris I. Orim; Rexon T. Nting
  20. The anti-democratic logic of right-wing populism and neoliberal market-fundamentalism By Ötsch, Walter; Pühringer, Stephan

  1. By: Gloria Gennaro; Giampaolo Lecce; Massimo Morelli
    Abstract: Do candidates use populism to maximize the impact of political campaigns? Is the supply of populism strategic? We apply automated text analysis to all available 2016 US Presidential campaign speeches and 2018 midterm campaign programs using a continuous index of populism. This novel dataset shows that the use of populist rhetoric is responsive to the level of expected demand for populism in the local audience. In particular, we provide evidence that current U.S. President Donald Trump uses more populist rhetoric in swing states and in locations where economic insecurity is prevalent. These findings were confirmed when the analysis was extended to recent legislative campaigns wherein candidates tended towards populism when campaigning in stiffly competitive districts where constituents are experiencing high levels of economic insecurity. We also show that pandering is more common for candidates who can credibly sustain anti-elite positions, such as those with shorter political careers. Finally, our results suggest that a populist strategy is rewarded by voters since higher levels of populism are associated with higher shares of the vote, precisely in competitive districts where voters are experiencing economic insecurity. Keywords: Populism, Electoral Campaign, American Politics, Text Analysis
    Date: 2019
  2. By: Tanguiane, Andranick S.
    Abstract: The German two-vote election system implements two historical conceptions of political representation coined at the end of the 18th century during the American and French Revolutions. The descriptive conception - the parliament portrays the society in miniature - is implemented in the first vote with which local candidates are delegated to the federal parliament. The agent conception - the parliament consists of people's trustees who are not necessarily their countrymen - is implemented in the second vote for a party. The recent conception of representation, policy representation - how well the party system and government represent policy preferences of the electorate, is supported by no election instrument, and the Third Vote election method just aims at filling in this gap. Under the "Third Vote", the voters cast no votes but are asked about their preferences on policy issues as declared in the party manifestos (like in VAAs - voting advice applications, e.g. German Wahl-O-Mat: Abolish Euro -Yes/No; Leave NATO? - Yes/No, etc.). Then the policy profile of the electorate with the balance of public opinion on every issue is determined. The degree to which the parties match with it is expressed by the parties' representativeness indices of popularity (the average percentage of electors represented on all the issues) and universality (the percentage of cases when a majority is represented), and the parliament seats are distributed among the parties in proportion to their indices. The voters are no longer swayed by politicians' charisma and communication skills but are directed to subject matters behind personal images and ideological symbols. The focus on choice properties (political and economic implications of elections, or of single decisions like Bexit or involvement in a new war) is supposed to make vote less emotional and superficial but more rational and responsible, aiming finally at a "more democratic" representative democracy. The Third Vote has been approbated and improved during the 2016, 2017 and 2018 elections to the Student Parliament (StuPa) of the Karlsruhe Institute of Technology (KIT). In the 2016 experiment, the policy questions for the electoral ballots have been taken from the StuPa-OMat - the KIT adaptation of the Wahl-O-Mat to the StuPa elections. However, the questions proposed by the election committee can be favorable for one party and unfavorable for another, making elections manipulable. To avoid impartiality in the 2017 experiment, the competing parties have formulated the questions themselves on their own responsibility - as an element of the electoral campaign, then all the parties have answered all the questions, and finally an optimization model has selected 25 ones to maximally contrast between the party positions. A more sophisticated optimization model in the 2018 experiment has shown even better results. This paper has three subjects. The first one is the Third Vote's equalization effect: an unusually small ratio of the resulting parliament faction sizes, which is surmounted by the Third Vote Plus - a minor modification of the Third Vote. The second subject is combining the Third Vote and Third Vote Plus methods with traditional elections. The third subject is comparative evaluation of three optimization models to select questions. Due to these advances, the Third Vote can be considered an election-ready prototype of a voting method either for use alone or for integration into existing election systems.
    Keywords: policy representation,representative democracy,direct democracy,elections,coalitions,theory of voting
    JEL: D71
    Date: 2019
  3. By: Shino Takayama (School of Economics, The University of Queensland); Yuki Tamura (Department of Economics, University of Rochester); Terence Yeo (School of Economics, The University of Queensland)
    Abstract: We propose a two-party model of policy promises and valence for office-seeking candidates under a two-stage electoral process with strategic voters. There are two equilibrium regimes depending on whether a good quality candidate of one party can win elections at both stages with certainty. We then provide the conditions for the existence of each equilibrium regime. We further analyze the case where only one party holds a primary, and conduct comparative statics analyses including how the change of public opinion affects equilibrium outcomes. Using a modified model including the decision of each candidate on entering the primary, we also show that if a low quality candidate places less importance on policy outcomes, and the good quality candidate in the opponent party has sufficiently low valence relative to the good quality candidate in her own party, she does not enter. This is because her entry will potentially damage the probability of her party winning the general election.
    Keywords: primary election, median voter, uncertainty, valence
    Date: 2019–05–24
  4. By: Imam, M.; Jamasb, T.; Llorca, M.
    Abstract: As part of their electricity sector reforms, Sub-Saharan African countries have established independent regulatory agencies to signal legal and political commitment to end self-regulation and provision of service by the state. The reforms aimed to encourage private investments, improve efficiency, and extend the service to the millions who lacked access to it. However, after nearly two and half decades of reforms, these expectations have not been met and the electricity sectors of these countries remain undeveloped. There are anecdotes that these outcomes are due to poor design, non-credible, unpredictable regulations, and political interference. This paper investigates the performance of the reforms in the context of government political ideology. We use a dynamic panel estimator and data from 45 countries from 2000 to 2015 to analyse the role of ideological differences in the effect of independent sector regulation on access to electricity and installed capacity. We find negative impact from independent regulatory agencies on installed capacity in countries with left-wing governments, while in countries with right-wing governments we find positive effects on capacity. Also, we find negative impact on access in countries with left-wing governments, while we find no significant impact for countries with right-wing governments. The results have interesting policy implications for private sector participation, increased generation capacity and access rates especially in countries with left-wing governments.
    Keywords: independent regulation, electricity sector reform, government ideology, dynamic GMM, Sub-Saharan Africa
    JEL: D73 Q48 L51 L94 O55 P16
    Date: 2019–05–19
  5. By: Gagliarducci, Stefano (University of Rome Tor Vergata); Paserman, M. Daniele (Boston University); Patacchini, Eleonora (Cornell University)
    Abstract: This paper studies how politicians and voters respond to new information on the threats of climate change. Using data on the universe of federal disaster declarations between 1989 and 2014, we document that congress members from districts hit by a hurricane are more likely to support bills promoting more environmental regulation and control in the year after the disaster. The response to hurricanes does not seem to be driven by logrolling behavior or lobbysts' pressure. The change in legislative agenda is persistent over time, and it is associated with an electoral penalty in the following elections. The response is mainly promoted by representatives in safe districts, those with more experience, and those with strong pro-environment records. Our evidence thus reveals that natural disasters may trigger a permanent change in politicians' beliefs, but only those with a sufficient electoral strength or with strong ideologies are willing to engage in promoting policies with short-run costs and long-run benefits.
    Keywords: U.S. Congress, hurricanes, legislative activity
    JEL: D70 D72 H50 Q54
    Date: 2019–05
  6. By: Emilio Ocampo
    Abstract: Although the application of the conceptual and analytical framework of economics to the study of populism is still in its infancy, great advances have been made in recent years. This paper reviews some key contributions behind this progress. When analyzing populism, economists face two methodological hurdles: lack of consensus and clarity about its definition and reconciling the populist vote with voter rationality. The former has plagued sociologists and political scientists for decades. As to the latter, it raises a conundrum: if populist policies are detrimental to economic growth, as most economists agree, the vote for a populist candidate suggests some irrationality or inefficiency in the political markets. The works reviewed in this paper propose alternative approaches to address both issues. The most promising line of research in the economic analysis of populism draws concepts from other social sciences such political theory, sociology, history and social psychology.
    Keywords: Populism, political economy, voter behavior, rationality, democracy.
    JEL: B2 D72 D78 D83 H0 P47 P48
    Date: 2019–05
  7. By: Pranab Bardhan (University of California, Berkeley); Sandip Mitra (Indian Statistical Institute); Dilip Mookherjee (Boston University); Anusha Nath (Federal Reserve Bank of Minneapolis)
    Abstract: We study how political support of household heads respond to receipt of different private and public good benefits delivered by local governments, and whether upper level governments respond strategically by manipulating program budgets to lower level government in West Bengal, India. We exploit redistricting of electoral boundaries by a non-partisan Election Commission, a plausibly exogenous shock to political competition. Consistent with a model of politically motivated allocation, private recurring benefit programs contracted (resp. expanded) in villages redistricted to more competitive constituencies when bottom and upper tier governments were controlled by opposing (resp. same) parties. The resulting changes in household benefit flows help predict household political support, which in turn rationalize the inter-village targeting patterns. The results illustrate the tendency for political parties to manipulate transfers across constituencies in the absence of formula-based grants to local governments, and more generally for political incentives to focus on delivery of short-term private benefits rather than one-time benefits or public goods consistent with theories of political clientelism.
    JEL: H40 H75 H76 O10 P48
    Date: 2018–12
  8. By: Tarek A. Hassan (Boston University, NBER, and CEPR); Stephan Hollander (Tilburg University); Laurence van Lent (Frankfurt School of Finance and Management); Ahmed Tahoun (London Business School)
    Abstract: We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm’s actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. These results continue to hold after controlling for news about the mean (as opposed to the variance) of political shocks. Interestingly, the vast majority of the variation in our measure is at the firm level rather than at the aggregate or sector level, in the sense that it is neither captured by the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.
    Keywords: Political uncertainty, quantification, firm-level, lobbying
    JEL: D8 E22 E24 E32 E6 G18 G32 G38 H32
    Date: 2019–04
  9. By: Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable
    Abstract: In many real world situations, collective decisions are made using voting. Moreover, scenarios such as committee or board elections require voting rules that return multiple winners. In multi-winner approval voting (AV), an agent may vote for as many candidates as they wish. Winners are chosen by tallying up the votes and choosing the top-$k$ candidates receiving the most votes. An agent may manipulate the vote to achieve a better outcome by voting in a way that does not reflect their true preferences. In complex and uncertain situations, agents may use heuristics to strategize, instead of incurring the additional effort required to compute the manipulation which most favors them.In this paper, we examine voting behavior in multi-winner approval voting scenarios with complete information. We show that people generally manipulate their vote to obtain a better outcome, but often do not identify the optimal manipulation. Instead, voters tend to prioritize the candidates with the highest utilities. Using simulations, we demonstrate the effectiveness of these heuristics in situations where agents only have access to partial information.
    Date: 2019–05
  10. By: Cox, Michael
    Abstract: This article is based on the author's keynote address at the annual conference of the International Affairs Standing Committee of the Royal Irish Academy, titled ‘Retreat from Globalisation? Brexit, Trump and the New Populism’, which took place at the Royal Irish Academy in Dublin on 31 May 2017
    Keywords: populism; globalization; liberalism; voting; Irish politics; free trade; international economics; economic globalization; Irish studies; political parties
    JEL: N0
    Date: 2017–10–25
  11. By: Neretina, Ekaterina (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters and it highlights the implications of limited competition in Financial Economics. The first chapter shows negative externalities from corporate lobbying on the market value of competitor companies that do lobby themselves. It also demonstrates that the competitors do not lobby when they lack voting power to support lawmakers in the elections, or when they fail to coordinate in trade associations. Two other chapters focus on implications of limited competition in intermediation industries. The second chapter shows that segmentation in the corporate bond market results in limited choice of underwriters to the issuers, providing underwriters with high bargaining power and oligopolistic rents. The third chapter shows that dominant plaintiff law firms that charge premium fees for their services do not improve the settlement outcomes for their clients, but merely use their ability to select large and profitable lawsuits.
    Date: 2019
  12. By: Patrick Lahr; Justus Winkelmann
    Abstract: We consider a multi-sender cheap talk model, where the receiver faces uncertainty over whether senders have aligned or state-independent preferences. This uncertainty generates a trade-off between giving sufficient weight to the most informed aligned senders and minimizing the influence of the unaligned. We show that preference uncertainty diminishes the benefits from specialization, i.e., senders receiving signals with more dispersed accuracy. When preference uncertainty becomes large, it negates them entirely, causing qualified majority voting to become the optimal form of communication. Our results demonstrate how political polarization endangers the ability of society to reap the benefits of specialization in knowledge.
    Keywords: Cheap Talk, Information Aggregation, Voting
    JEL: D83 D71
    Date: 2019–05
  13. By: Ahmed Skali; David Stadelmann und Benno Torgle
    Abstract: Do crises erode trust in government? To answer this question, we leverage the quasi-experimental setting of the sharply increased military threat to the neutral county of Switzerland during the two world wars as an exogenous shock. In doing so, we exploit a unique feature of Swiss politics: government issuance of pre-referenda voting recommendations. We use constitu ent adherence to government recommendations as a behaviour al proxy for trus t in government, measured in real time prior to, duri ng, and after the crisis. Our difference-in- differences estimates provide strong evidence that constituents are significantly less likely to follow governmental voting recommendations during wartime.
    Keywords: Trust in Government; Crisis; WWII; World War II; Referenda; Switzerland
    JEL: D72 D74 H56 H79
    Date: 2019–05
  14. By: Apolte, Thomas; Müller, Julia
    Abstract: Why do groups of even well-educated individuals sometimes persistently believe in political myths and ideologies? We follow cognition psychology in its finding that individuals sometimes stick with intuitive but false propositions. We also follow Kahneman, however, in maintaining that they challenge their intuition when the consequences for their individual wealth are sufficiently high. We embed these propositions into a model that determines the conditions of a myth equilibrium, in which almost all individuals stick with ex-post rationalization to justify their initial intuition, or a truth equilibrium in which all individuals pursue ex-ante reasoning that aims to get as close to the truth as possible. We show why myths are clustered around certain groups and why groups are more likely to stick with political myths than individuals, thus disproving Condorcet's jury theorem.
    Keywords: Cognition,Ideology,Rational Ignorance
    JEL: D72 D83 D91
    Date: 2019
  15. By: Marx, Paul (University of Duisburg-Essen)
    Abstract: Many observers have noticed the importance of anger in contemporary politics, particularly with reference to populism. This article addresses the question under which conditions people become angry about a specific aspect of their lives: their personal financial situation. Specifically, it asks if populist anti-elite rhetoric has a causal influence on anger and if this influence differs across socio-economic groups. The theoretical expectation is that populist rhetoric allows people to externalize responsibility for an unfavorable financial situation and thereby to turn negative self-conscious emotions into anger. The argument is tested with original survey data from France, Germany, and the United States. The empirical analysis yields three main insights. First, negative emotional reactions to respondents' personal finances (and anger in particular) are surprisingly widespread in all three countries. Second, there is a pronounced socio-economic gradient in anger and other negative emotions. Third, and most importantly, randomly exposing participants to (mildly) populist anti-elite rhetoric causes considerably higher expressed anger about one's financial situation in France and Germany, but less so in the United States. This suggests a causal role of populist rhetoric in stirring 'pocketbook anger'. This is true in particular in the middle classes. The notion that populist rhetoric reduces negative self-conscious emotions, such as shame, is not supported by the data.
    Keywords: populism, anger, socio-economic problems, middle class, survey experiments
    JEL: D72 D74 P16
    Date: 2019–05
  16. By: Raymond Fisman (Boston University and NBER); Jing Shi (RMIT); Yongxiang Wang (University of Southern California); Weixing Wu (University of International Business and Economics)
    Abstract: We study how sharing a hometown or college connection with an incumbent member of China’s Politburo affects a candidate’s likelihood of selection as a new member. In specifications that include fixed effects to absorb quality differences across cities and colleges, we find that hometown and college connections are each associated with 5-9 percentage point reductions in selection probability. This “connections penalty†is equally strong for retiring Politburo members, arguing against quota-based explanations, and it is much stronger for junior Politburo members, consistent with a role for intra-factional competition. We show that our findings differ sharply from earlier work both because of our more rigorous empirical specification as well as our emphasis on shared hometown and college – rather than shared workplace – connections.
    Keywords: Social Ties, Political Connections, Political Elite, Politburo, China
    JEL: D72 P26
    Date: 2019–04
  17. By: Helénsdotter, Ronja (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The main objective of this paper is to strengthen the knowledge about the relationship be-tween cooperation and political affiliation. For this purpose, I carry out an incentivized N-person prisoner’s dilemma experiment. I find that left-wing voters cooperate more than right-wing voters in 3-person prisoner’s dilemmas. However, this difference in cooperation tapers off with group size due to a heterogeneous response to larger decision groups. While leftists cooperate less as the group size increases, I find no significant group size effect for rightists. These findings can partly be explained by differences in beliefs about the cooperativeness of others, but a substantial part remains unexplained.
    Keywords: Cooperation; Social dilemma; Political ideology; Group size; Experiment
    JEL: C71 C90 D70 D84
    Date: 2019–05
  18. By: Jablonski, Ryan S.; Oliver, Steven; Hastings, Justin V.
    Abstract: Transnational crime brings substantial foreign capital into a number of fragile and developing states. Yet the economic and political impacts of such capital have rarely been studied due to the challenges of obtaining accurate data on illicit activities. We overcome this challenge by compiling a dataset on the amount and disbursement dates of ransom payments made by ship owners and insurers to Somali pirates from 2005 to 2012, along with sub-national commodity prices and trade flows in Somalia. Using a difference-in-differences strategy, we hypothesize and find that ransoms have effects similar to those associated with the Dutch Disease. These effects include appreciating the local currency, decreasing export competitiveness, and increasing import dependence. The results illuminate a new channel through which illicit capital can undermine long-term economic development and foster an economic and political dependency on illicit sectors.
    JEL: N0 F3 G3
    Date: 2017–06–01
  19. By: Simplice A. Asongu (Yaoundé/Cameroon); Stella-Maris I. Orim (Coventry University, UK); Rexon T. Nting (University of Wales, London, UK)
    Abstract: The study assesses the relationship between terrorism and social media from a cross section of 148 countries with data for the year 2012. The empirical evidence is based on Ordinary Least Squares, Negative Binomial and Quantile regressions. The main finding is that there is a positive relationship between social media in terms of Facebook penetration and terrorism. The positive relationship is driven by below-median quantiles of terrorism. In other words, countries in which existing levels of terrorism are low are more significantly associated with a positive Facebook-terrorism nexus. The established positive relationship is confirmed from other externalities of terrorism: terrorism fatalities, terrorism incidents, terrorism injuries and terrorism-related property damages. The terrorism externalities are constituents of the composite dependent variable.
    Keywords: Social Media; Terrorism
    JEL: D83 O30 D74
    Date: 2019–01
  20. By: Ötsch, Walter; Pühringer, Stephan
    Abstract: The paper compares neoliberal market-fundamentalism and right-wing populism on the basis of its core patterns of thinking and reasoning. Based on an analysis of the work of important founders of market fundamental economic thinking (particularly Mises, and Hayek) and the arguments brought forward by leading right-wing populist we find highlight conceptual resemblances of these two approaches: Both show a world that is split into only two countervailing parts. Right-wing populism shows a society split into two groups, fighting against each other. In a similar vein, neoliberal market-fundamentalism shows only two possible countervailing economic and societal orders. Thus, we develop a scheme of the similar dual social worlds of right-wing-populism and market-fundamentalism and offer some examples in the history of the Republican Party, where these concepts mutually reinforced each other or served as a gateway for each other. The main conclusion of the paper is that neoliberal market-fundamentalism and right-wing populism can be perceived as two mutually reinforcing and radicalizing threats to democracy in the 21st century.
    Keywords: Right-wing populism,market-fundamentalism,inner images,Donald Trump,patterns of thinking
    JEL: A12 A14 B41 B59
    Date: 2019

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