nep-pol New Economics Papers
on Positive Political Economics
Issue of 2024‒03‒25
eleven papers chosen by
Eugene Beaulieu, University of Calgary

  1. European banks are not immune to national elections By Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
  2. Political uncertainty and currency markets By Markus Leippold; Felix Matthys; Philippe Mueller; Michal Svaton
  3. Formula-based Grants as Pork Barrel Politics: Targetability and the Political-strategic Use of Grants By Søren Frank Etzerodt; Niels Jørgen Mau Pedersen
  4. Are most journalists killed in democracies? By Boese-Schlosser, Vanessa
  5. Political Party Manifestos: Reform Paradox in Pakistan By PIDE
  6. What Kinds of Incentives Encourage Participation in Democracy? Evidence from a Massive Online Governance Experiment By Hall, Andrew B.; Oak, Eliza R.
  7. The swing voter's curse revisited: Transparency's impact on committee voting By Siddhartha Bandyopadhyay; Moumita Deb; Johannes Lohse; Rebecca McDonald
  8. Political Trenches: War, Partisanship, and Polarization By Grosjean, Pauline; Jha, Saumitra; Vlassopoulos, Michael; Zenou, Yves
  9. Political favoritism in post-conflict settings : evidence from Afghanistan after the Taliban takeover By Ha, Krystal
  10. Replication of Changing Hearts and Minds? Why Media Messages Designed to Foster Empathy Often Fail (Gubler et al., 2022) By Jakub Prochazka; Shubham Pandey; Ondrej Castek; Mojtaba Firouzjaeiangalougah
  11. Deflecting Economic Sanctions: Do Trade and Political Alliances Matter? By Devasmita Jena; C. Akash; Prachi Gupta

  1. By: Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
    Abstract: We investigate whether European banks adjust their loan prices and volumes of new lending in the months running up to major national elections. Using a unique dataset that draws on data covering some 250 banksin 19 Eurozone countries from 2010 to 2020 at monthly frequency, and that includes lending amounts and interest rates on new lending, we find that European banks increase loan rates for corporate and housing loans ahead of elections. This supports the view that loan pricing changes of European banks are driven by the electoral uncertainty inherent to the democratic election process. We find that the impact of elections is more pronounced for small banks, as well as obtain some evidence that elections affect the credit supply of banks. Our findings suggest that the occurrence of elections is affecting the behavior of European banks.
    Keywords: bank, lending, politics, elections, political uncertainty, loan pricing
    JEL: C51 E37 E44 F34
    Date: 2024
  2. By: Markus Leippold (University of Zurich; Swiss Finance Institute); Felix Matthys (ITAM); Philippe Mueller (Warwick Business School Finance Group); Michal Svaton (University of Zurich - Department of Banking and Finance)
    Abstract: We study the impact of political uncertainty on exchange rates and the pricing of currency options. While we do not find clear directional patterns in exchange rates, option prices reflect the heightened political uncertainty around elections and referendums for a cross-section of 30 countries. In general, FX options whose lives span political events are more expensive, with the effect being even stronger for options that protect against domestic currency depreciation.
    Keywords: FX option pricing; Volatility and skewness; electoral systems; political uncertainty
    JEL: G14 G15 G13 F31 C58 D72
    Date: 2024–01
  3. By: Søren Frank Etzerodt (TUM School of Social Sciences & Technology); Niels Jørgen Mau Pedersen (Danish Center for Social Science Research)
    Abstract: A large literature in political science asserts that formula-based grants are immune to political whims and pork barrel politics. In contrast, we argue that formula-based grants can be leveraged politically as central policymakers have the power to influence the design of the formula allowing grants to be targeted to specific geographically defined constituencies. Using the Danish large-scale 2020 municipal equalization and grants reform as a case, we test our argument. We find that several new formula-based grants have a relatively high degree of political targetability while at the same time having a large impact on redistribution. These grants correlate with constituencies where the incumbent and its supporters are strongly represented before the reform. The new grants also impact voting in the election following the reform suggesting that formula-based grants may also pay off electorally. We find no robust statistically significant relationship for formula-based grants based on low targetability.
    Keywords: pork barrel politics, distributive politics, grants, formula-based grants, targetability, mixed methods
    JEL: P16 P30 P35 H40
    Date: 2024–02
  4. By: Boese-Schlosser, Vanessa
    Abstract: Existing research presents conflicting evidence on how political institutions affect journalist killings. Some suggest most murders occur in the middle of the regime spectrum, while others indicate increased safety in democracies. Another perspective argues journalists are most vulnerable in democracies. This article uncovers which institutions effectively protect journalists. Using global data on journalist killings between 2002 - 2016, it showcases to which extent each of the three hypothesized relationships is empirically observable. My study provides a unified theoretical framework and reveals: Most murders occur in the middle of the regime spectrum. Electoral democratic institutions offer insufficient protection - journalists are safe only in liberal democracies. Demonstrating that evolving definitions of 'democracy' affect our conclusions, my article highlights the need to prioritize defining contemporary democracy. When studying journalist killings over the past two decades, the electoral to liberal democracy threshold holds greater importance than the democracy-autocracy distinction.
    Date: 2024
  5. By: PIDE (Pakistan Institute of Development Economics, Islamabad)
    Abstract: A precise manifesto serves as a yardstick to measure performance of political parties against pledges. However, the culture of meaningful debates remains elusive in Pakistan’s politics. Manifestos presented by the political parties in 2024 General elections reflect a wish-list having tall claims but no strategy of resource mobilization, and making the economy self-driven without the IMF borrowing.
    Date: 2024
  6. By: Hall, Andrew B. (Stanford U); Oak, Eliza R. (Yale U)
    Abstract: How can we democratically govern the AI, social media, and online platforms of the future? Today, low participation is a major barrier to community governance online. We leverage a digital quasi-experiment that allows us to study the links between incentives and political participation at a scale and granularity not previously possible. We focus on a web3 startup called Optimism that distributed digital tokens worth roughly $28 million USD to more than 300, 000 active participants in its governance system as part of a sequence of rewards meant to encourage long-run engagement. Studying 1.2 million unique wallet addresses, we find that the reward scheme induces new users to participate in Optimism's governance, has larger effects for smaller token holders, and leads voters to spread their votes across delegates more widely. Together, the results suggest that reward schemes that give people a durable stake in the community and promise a sequence of future rewards are able to broaden participation in online democracy noticeably, at least in the short run under the proper conditions.
    Date: 2023–11
  7. By: Siddhartha Bandyopadhyay (University of Birmingham); Moumita Deb (University of Heidelberg); Johannes Lohse (University of Birmingham); Rebecca McDonald (University of Birmingham)
    Abstract: Majority voting is considered an efficient information aggregation mechanism in committee decision-making. We examine if this holds in environments where voters first need to acquire information from sources of varied quality and cost. In such environments, efficiency may depend on free-riding incentives and the 'transparency' regime - the knowledge voters have about other voters' acquired information. Intuitively, more transparent regimes should improve efficiency. Our theoretical model instead demonstrates that under some conditions, less transparent regimes can match the rate of efficient information aggregation in more transparent regimes if all members cast a vote based on the information they hold. However, a Pareto inferior swing voter's curse (SVC) equilibrium arises in less transparent regimes if less informed members abstain. We test this proposition in a lab experiment, randomly assigning participants to different transparency regimes. Results in less transparent regimes are consistent with the SVC equilibrium, leading to less favourable outcomes than in more transparent regimes. We thus offer the first experimental evidence on the effects of different transparency regimes on information acquisition, voting, and overall efficiency
    Keywords: Information acquisition, Voting, Transparency, Swing voter's curse
    JEL: C92 D71 D83
    Date: 2024–01
  8. By: Grosjean, Pauline (UNSW Sydney); Jha, Saumitra (Stanford U); Vlassopoulos, Michael (U of Southampton and IZA, Bonn); Zenou, Yves (Monash U and IZA, Bonn)
    Abstract: We study the dynamics between local segregation, partisanship, and political polarization. We exploit large-scale, exogenous and high-stakes peer assignment due to universal conscription of soldiers assigned from each of 34, 947 municipalities to French infantry regiments during WWI. We find that municipalities with soldiers serving with the same line regiment converge in their post-war voting behaviors. Soldiers from rural municipalities exposed to more leftist regimental peers become more leftist for the first time after the war, while adjacent municipalities assigned to the right are inoculated against the left. We provide evidence that these differences reflect persuasive information exchanged among peers when the stakes for cooperation and trust are high rather than group conformity. These differences further lead to the emergence of sharp and enduring post-war discontinuities across 435 regimental boundaries that are reflected, not only in voting, but also in violent civil conflicts between Collaborators and Resistants during WWII.
    JEL: D74 L14 N44
    Date: 2023–12
  9. By: Ha, Krystal (Monash University)
    Abstract: I examine political favoritism based on prior support during conflicts. In particular, I identify whether or not the new Taliban regime in Afghanistan, which took over in August 2021, is systematically favoring its past allies using a difference-in-differences method. I proxy economic activity using nighttime light intensity and conflict alignment using a database of 75, 915 militarily significant conflict events occurring in Afghanistan from 2004-2009. I find evidence that the Taliban are discriminating against their former enemies. I also find evidence that the Taliban are actively favouring their past allies in periods of low economic activity. This paper augments the literature on political favoritism by creating a new measure for political alignment and also suggests that the Taliban could be contributing to regional instability through favoritism.
    Keywords: Afghanistan ; favoritism ; spatial analysis ; georeferenced data ; conflict JEL classifications: D72 ; F51
    Date: 2024
  10. By: Jakub Prochazka (Masaryk University, Faculty of Economics and Administration, Department of Business Management, Brno, Czech Republic); Shubham Pandey (Indian Institute of Technology Bombay, Mumbai); Ondrej Castek (Masaryk University, Faculty of Economics and Administration, Department of Business Management, Brno, Czech Republic); Mojtaba Firouzjaeiangalougah (Masaryk University, Faculty of Economics and Administration, Brno, Czech Republic)
    Abstract: This paper focuses on computational reproducibility and robustness replicability of Gubler et al.’s(2022) studies which examine the effect of media messages on empathic concern, dissonance, and out-group policy attitudes. The original paper tests four hypotheses using two online experiments with large samples from one US state (N1=5, 800; N2=2, 200). Regarding the first experiment, we successfully reproduced the effect that initial antipathy weakens the effect of humanizing treatment on empathic concern (H1). However, we show that the moderating effect is negligible and has little practical significance. Moreover, the individual effect estimates in our analyses slightly differed from the original paper due to different procedure of data cleaning and minor coding errors in the original paper. The most relevant difference was the opposite effect of gender than reported in the original paper. We also show that empathic concern might mediate the effect of humanizing treatment on attitudes toward immigrants (H3). The original study rejected the mediation hypothesis due to not finding a total effect of humanizing treatment on attitudes. In contrast, we found that humanization treatment has a positive indirect effect on attitudes through empathic concern. At the same time, it also has a direct negative effect on attitudes. For the second experiment (H1, H2a, H2b, H3), we attempted to reproduce the results using a different software. We partially succeeded once receiving support from the authors of the original study. We note throughout the report issues we have encountered.
    Keywords: Reproduction, Replication, Research Transparency, Open Science, Economics, Political Science, Persuasion, Political Communication, Empathic Concern
    JEL: B41 C10 C81 P49
    Date: 2024–03
  11. By: Devasmita Jena (Corresponding Author, Madras School of Economics (MSE), Chennai); C. Akash (MSE); Prachi Gupta (Temple University, Tokyo, Japan)
    Abstract: Success of economic sanctions hinges on their impact on sanctioned countries’ trade. This, in turn, depends on the sanctioned country’s opportunity to divert trade to a third-party (country, not involved in sanctions). History is witness to third-parties facilitating trade diversion, thus busting sanction. Nonetheless, literature does not present conclusive evidence on trade diversion or on motivation for busting sanctions. Therefore, in this paper, we address the following. What bearing sanctions have on bilateral trade flows and trade diversion? Is diversion dependent on the political and trade alliance the third-party shares with the sanctioned and/or the sanctioning countries? We estimate a structural gravity model for globally representative country-dyads, during 1990-2019, using, inter-alia the Global Sanctions Database. We find that sanctions depress bilateral trade between sanctioned and sanctioning nations and cause trade diversion via third-party. The existence of trade alliance between third-party and country involved in sanction has additional impact on trade diversion. Furthermore, a political alliance between third-party and sanctioned country heightens trade between them. However, political alliance between third-party and sanctioning country doesn’t explain trade between them. Our results have insight for India’s evolving trade relations with Russia, since 2022, as Russia reels under Western sanctions.
    Keywords: Sanction, GSDB, Trade Agreement, Political Alliance, Structural Gravity Model
    JEL: F1 F14 F51 N4
    Date: 2023–10

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