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on Positive Political Economics |
| By: | Bouton, Laurent; Castanheira, Micael |
| Abstract: | This paper compares the properties of three electoral systems when voters have imperfect information. Imperfect information blurs voter decisions and may divorce the electoral outcome from the true preferences of the electorate. The challenge for electoral design is therefore to translate the (sometimes contradictory) elements of information dispersed in the electorate into the most efficient aggregate outcome. We propose a novel model of multi-candidate elections in Poisson games, and show that Approval Voting produces a unique equilibrium that is fully efficient: the candidate who wins the election is the one preferred by a majority of the electorate under full information. By contrast, traditional systems such as Plurality and Runoff elections cannot cope satisfactorily with information imperfections. |
| Keywords: | Approval Voting; Information Aggregation; Multicandidate Elections; Poisson Games |
| JEL: | C72 D72 D81 D82 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6695&r=pol |
| By: | Marco Bonomo (EPGE/FGV and CIREQ); Cristina Terra (THEMA/Université de Cergy-Pontoise and EPGE/FGV) |
| Abstract: | In this paper we build a framework where the interplay between the lobby power of special interest groups and the voting power of the majority of the population leads to political business cycles. We apply our set up to explain electoral cycles in government expenditure composition as well as to cycles in aggregate expenditures and in real exchange rates. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2008-18&r=pol |
| By: | Hardouvelis, Gikas A; Thomakos, Dimitrios D |
| Abstract: | We investigate the behavior of consumer confidence around national elections in the EU-15 countries during 1985:1-2007:3. Consumer confidence increases before the date of elections and falls subsequently by almost the same amount. It is able to predict the strength of the performance of the incumbent party and its probability of re-election both alone and in the presence of macro- economic and fiscal variables. The post-election drop is negatively related to the previous run up and is a function of the political - but not the economic - environment. A similar rise and fall characterizes consumer confidence in the United States. |
| Keywords: | consumer confidence; EU-15; fiscal conditions; incumbent party; macro-economy; national elections; political business cycle; USA |
| JEL: | D7 E6 H3 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6701&r=pol |
| By: | Gersbach, Hans |
| Abstract: | Although they would yield social benefits, some political projects may not be implemented in democracies. Prominent examples are the reform of European labour markets, the reduction of government debt or the reduction of greenhouse gases. We suggest introducing political contracts to make liberal democracy more efficient without altering its fundamental values. Furthermore, such contracts can foster the public's trust in politics. We discuss four archetypes of political contracts and ways of implementing them. We outline the certification and control procedures for political contracts and address the major concerns arising with regard to contractual democracy. |
| Keywords: | contractual democracy; elections; political contracts |
| JEL: | D7 H1 H4 K1 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6763&r=pol |
| By: | Brückner, Markus; Ciccone, Antonio |
| Abstract: | According to the economic approach to political transitions, negative transitory economic shocks can give rise to a window of opportunity for democratic change. We examine this hypothesis using yearly rainfall variation over the 1980-2004 period in 41 Sub-Saharan African countries. We find that a 25% drop in rainfall increases the probability of a transition to democracy during the following two years by around 3 percentage points. A 5% fall in income due to low rainfall raises the probability of democratization by around 7 percentage points. We also find that rainfall does not affect transitions from democracy to autocracy. |
| Keywords: | democratization; transitory economic shocks |
| JEL: | O0 P0 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6691&r=pol |
| By: | Michel Le Berton; Vera Zaporozhets |
| Abstract: | In this paper we develop a duopolistic model of legislative lobbying. Two lobbies compete to influence the votes of a group of legislators who have a concern for both social welfare and campaign contributions. The type of a legislator is the relative weight he/she places on social welfare as compared to money. We study the equilibria of this lobbying game under political certainty and uncertainty and examine the circumstances under which the policy is socially efficient, and the amount of money that has been invested in the political process. Special attention is paid to three primitives of the environment: the intensity of the competition between the lobbies, the internal organisation of the legislature and the proportion of bad and good legislators in the political area |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0710&r=pol |
| By: | Oriol Aspachs-Bracons; Irma Clots-Figueras; Paolo Masella |
| Abstract: | This paper studies the relationship between schooling and political behaviour in ethnically divided societies. It draws on survey data from Catalonia to investigate how the introduction in 1983 of a bilingual education system affects political behaviour. Using within and between cohort variation in exposure to Catalan language at school, we find that individuals who have experienced greater exposure to teaching in Catalan are more likely to declare to have voted in 1999 regional elections and to have chosen a Catalanist party. |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we077747&r=pol |
| By: | Mark Schelker |
| Abstract: | Public auditors should reduce agency problems and improve transparency. We address the question of whether auditors should be elected by the citizens or appointed by either the legislature or the executive, and explore the influence of conducting performance audits. We construct a unique dataset at the US State level capturing differences in the institutional design of state auditing institutions. We estimate the influence of auditor characteristics on different outcome variables reflecting government performance and implement an alternative identification strategy relying on citizens’ electoral decisions. We examine whether citizens use divided government – a costly mechanism to control the government – as a substitute, when other effective, but less costly mechanisms are not available. Even if the empirical results are sometimes difficult to interpret, we generally find that (1) performance audits tend to be beneficial and (2) elected auditors with a strong mandate to conduct performance audits seem to outperform other institutional arrangements. |
| Keywords: | Public auditors; audit courts; political institutions; political economics |
| JEL: | D70 H10 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2008-04&r=pol |
| By: | Dimitri Vandercruyssen |
| Abstract: | In this paper 16 different voting procedures for one-seat elections are analysed: the rules of Borda, Condorcet, Black, Copeland, Simpson, Hare, Coombs, Baldwin, Nanson and the plurality, anti-plurality, majority, approval and runoff rules. The 2 criteria we use as a measure for the validity of the voting procedures are Condorcet efficiency (the number of times a voting procedure selects the Condorcet winner) and Borda efficiency (the number of times a voting procedure selects the Borda winner). Computer simulations calculate efficiencies for the 16 voting procedures. We find that the Borda rule is about 85% Condorcet efficient while some voting procedures are always 100 % Condorcet efficient (Black, Copeland, Simpson, Baldwin, Nanson). Another rule is only 100 % Condorcet efficient with single peaked profiles (Coombs). This can be proven theoretically. Another feature from single peaked profiles seems to be that some voting procedures select the same winner (Simpson, Baldwin, and Nanson). This result may be interesting for future research. Considering Borda efficiencies we see that the Black rule scores well, followed by the rules of Copeland, Nanson and Baldwin. Taking both Condorcet and Borda efficiencies into account, we can state that the Black rule is superior. Then come the rules of Copeland, Simpson, Nanson and Baldwin. |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces9911&r=pol |
| By: | Bénabou, Roland |
| Abstract: | I develop a model of ideologies as collectively sustained (yet individually rational) distortions in beliefs concerning the proper scope of governments versus markets. In processing and interpreting signals of the efficacy of public and market provision of education, health insurance, pensions, etc., individuals optimally trade off the value of remaining hopeful about their future prospects (or their children's) versus the costs of misinformed decisions. Because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial, endogenous social cognitions emerge. Thus, an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them, embracing a statist ideology and voting for an excessively large government. Conversely, an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez-faire ideology and blind faith in the invisible hand. With public-sector capital, this interplay of beliefs and institutions leads to history-dependent dynamics. The model also explains why societies find it desirable to set up constitutional protections for dissenting views, even when ex-post everyone would prefer to ignore unwelcome news. |
| Keywords: | cognitive dissonance; ideology; institutions; laissez-faire; political economy; psychology; statism; wishful thinking |
| JEL: | D72 D83 H11 P16 Z1 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6754&r=pol |
| By: | Ueda, Michiko |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1283&r=pol |
| By: | Mark Schelker; Reiner Eichenberger |
| Abstract: | In the economic literature various political institutions designed to control the government have been analyzed. However, an important institution has been neglected so far: independent auditing institutions with an extended mandate to analyze the budget draft and individual policy proposals. We argue that auditors with an extended mandate improve transparency and provide essential information on the impact of policy proposals on common pool resources. This leads to less wasteful spending and a more efficient allocation of public resources. We empirically analyze the policy impact of local auditors with an extended audit mandate in Switzerland. Auditors, who can evaluate and criticize policy proposals ex ante to policy decisions, significantly reduce the general tax burden and public expenditures. We find similar results with different datasets. These results are robust to various changes in the econometric specification. |
| Keywords: | auditor; audit court; special interests; political economics; public finance |
| JEL: | D70 H10 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2008-06&r=pol |
| By: | Guriev, Sergei; Yakovlev, Evgeny; Zhuravskaya, Ekaterina |
| Abstract: | The optimal degree of decentralization depends on the importance of inter-state externalities of local policies. We show that inter-state externalities are determined by spatial distribution of interest groups within the country. Interest groups who have multi-state scope internalize inter-state externalities to a larger extent than the lobbyists with interests within a single state. We use variation in the geographic boundaries of politically-powerful industrial interests to estimate the effect of inter-state externalities on firm performance. Using firm-level panel data from a peripheralized federation, Russia in 1996-2003, we show that, controlling for firm fixed effects, the performance of firms substantially improves with an increase in the number of neighbouring regions under influence of multi-regional business groups compared to the number influenced by local business groups. Our findings have implications for the literatures on federalism and on international trade as trade restrictions are a common source of inter-state externalities. |
| Keywords: | Federalism; Inter-jurisdictional externalities; Inter-state trade barriers; Interest groups; Multinational firms |
| JEL: | D78 F15 F23 H77 P26 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6671&r=pol |
| By: | Lode Berlage; Bart Capeau; Philip Verwimp |
| Abstract: | Is it a matter of pure altruism or shortsightedness when a dictator spends an increasing amount of his revenues for the population, while cutting on own consumption? In order to be able to consume, the dictator first has to stay in power. We present a formal model of a power maximizing dictator. His revenues depend on the exports of a single crop. With the export earnings the dictator buys loyalty from the producers of the export crop by setting the domestic producer price. Revenues resulting from the di®erence between the international and the domestic price of the crop are used to finance a repressive apparatus. We characterize the optimal trade-o® between buying more loyalty and adapting the level of repression. The model is illustrated with a case study of Rwanda under president Habyarimana (1973-94). |
| Keywords: | dictatorship, political economy, co®ee, Rwanda. |
| JEL: | D72 H30 H56 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0311&r=pol |
| By: | Sergei Guriev (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR)); Konstantin Sonin (New Economic School (NES)); Anton Kolotilin (MIT) |
| Abstract: | In this paper we study nationalizations in the oil industry around the world in 1960-2002. We show, both theoretically and empirically, that governments are more likely to nationalize when oil prices are high and when political institutions are weak. We consider a simple dynamic model of the interaction between a government and a foreign oil company. The government cannot commit to abstain from expropriation and the company cannot commit to pay high taxes. Even though nationalization is ine? cient it does occur in equilibrium when oil prices are high. The model?s predictions are consistent with the panel analysis of a comprehensive dataset on nationalizations in the oil industry since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low even when controlling for country fixed effects. |
| JEL: | D23 L33 L71 P48 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0115&r=pol |
| By: | Sergei Guriev (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR)); Konstantin Sonin (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR)) |
| Abstract: | In an economy with weak economic and political institutions, the major institutional choices are made strategically by oligarchs and dictators. The conventional wisdom presumes that as rent-seeking is harmful for oligarchs themselves, institutions such as enforcement of the property rights will emerge eventually. We explicitly model a dynamic game between oligarchs and a dictator, who can contain rent-seeking. The oligarchs choose either a weak dictator (who can be overthrown by an individual oligarch) or a strong dictator (who can only be replaced via a consensus of oligarchs). In equilibrium, no dictator can commit to both: (i) protecting the oligarchs?property rights from the other oligarchs and (ii) not expropriating oligarchs himself. We show that a weak dictator does not limit rent-seeking. A strong dictator does reduce rent-seeking but also expropriates individual oligarchs. We show that even though eliminating rent-seeking is Pareto optimal, weak dictators do get appointed in equilibrium and rent-seeking continues. This outcome is especially likely when economic environment is highly volatile. |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0116&r=pol |
| By: | Alvarez, R. Michael; Katz, Gabriel |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1287&r=pol |
| By: | Eef Delhaye; Staf Proost; Sandra Rousseau |
| Abstract: | According to Becker (1968) it is best to use very high fines and low inspection probabilities to deter traffic accidents because inspection is costly. This paper uses a political economy model to analyse the choice of the fine and the inspection probability. There are two lobby groups: the vulnerable road users and the ‘strong’ road users. If only vulnerable road users are effective in lobbying, we find that the expected fine is higher than if only the interests of car drivers are taken into account. When we consider the choice between inspection probability and the magnitude of the fine for a given expected fine, we find that the fine preferred by the vulnerable road users is higher than socially optimal. The reverse holds if only the car drivers are effective lobbyists. The orders of magnitude are illustrated numerically for speeding and contrasted with current fines for drunk driving in the European Union. |
| Keywords: | Political economy, enforcement, traffic safety |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces0714&r=pol |
| By: | Buiter, Willem H |
| Abstract: | The paper reviews the arguments for and against monetary union among the six members of the Gulf Cooperation Council - the United Arab Emirates, the State of Bahrain, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatar and the State of Kuwait. Both technical economic arguments and political economy considerations are discussed I conclude that there is an economic case for GCC monetary union, but that it is not overwhelming. The lack of economic integration among the GCC members is striking. Without anything approaching the free movement of goods, services, capital and persons among the six GCC member countries, the case for monetary union is mainly based on the small size of all GCC members other than Saudi Arabia, and their high degree of openness. Indeed, even without the creation of a monetary union, there could be significant advantages to all GCC members, from both an economic and a security perspective, from greater economic integration, through the creation of a true common market for goods, services, capital and labour, and from deeper political integration. The political arguments against monetary union at this juncture appear overwhelming, however. The absence of effective supranational political institutions encompassing the six GCC members means that there could be no effective political accountability of the GCC central bank. The surrender of political sovereignty inherent in joining a monetary union would therefore not be perceived as legitimate by an increasingly politically sophisticated citizenry. I believe that monetary union among the GCC members will occur only as part of a broad and broadly-based movement towards far-reaching political integration. And there is little evidence of that as yet. |
| Keywords: | convergence; currency union; exchange rate regime; GCC |
| JEL: | E42 E52 E63 F33 F42 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6639&r=pol |
| By: | Martin, Philippe; Mayer, Thierry; Thoenig, Mathias |
| Abstract: | This paper analyzes empirically the relationship between civil wars and international trade. We first show that trade destruction due to civil wars is very large and persistent and increases with the severity of the conflict. We then test the presence of two effects that trade can have on the risk of civil conflicts: it may act as a deterrent if trade gains are put at risk during civil wars but it may also act as an insurance if international trade provides a substitute to internal trade during civil wars. We find support for the presence of these two mechanisms and conclude that trade openness may deter the most severe civil wars (those that destroy the largest amount of trade) but may increase the risk of lower scale conflicts. |
| Keywords: | civil war; globalization; trade |
| JEL: | F10 F51 F52 F59 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6659&r=pol |
| By: | Ueda, Michiko |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:clt:sswopa:1284&r=pol |