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Felix Bierbrauer (coauthored with Lydia Mechtenberg)

Winners and Losers of Early Elections: On the Welfare Implications of Political Blockades and Early Elections

We develop a dynamic model of political competition. Each party has a policymotivated ideological wing and an office-motivated opportunistic wing. A blockade arises if inner-party conflict stops policy implementation. We use this model to study whether early elections should be used to overcome a blockade. They have the advantage that urgent decisions are no longer delayed, and the disadvantage that unsuccessful governments gain additional time in office. This may give rise to a time inconsistency. Voters are in favour of a constitution without early elections. However, in the middle of a political crisis, they are willing to abandon it.

Frank Bohn (co-authored with Pierre-Guillaume Méon)

Political transfer cycles

This paper analyses transfers around elections in an opportunistic political business cycle (PBC) model with moral hazard. As some voters are uninformed, the government can improve reelection chances by increasing debt-financed transfers before elections and cutting transfers to repay the debt after elections. Transfer cycles are shown to depend on the dispersion of information among voters, the politicians' rent-seeking motive, and the output elect of government manipulations.

Anne Boring

Lobbying and contributions to influence voters: The example of U.S. drug re-imports

Over the past few years, legislators have been debating whether to authorize drug re-imports to the United States to reduce the price of pharmaceuticals. Lobbying patterns from the pharmaceutical industry suggest that the pharmaceutical interest group helps legislators reduce the risk of losing votes in the next election campaign, by providing them with a strong message and funds to convince consumers that re-imports should be banned. To elaborate its message, the interest group makes sure that its objective (to obtain protectionist measures) matches those of the legislator (to be reelected). A simple vertical differentiation model can show that contributions are used to influence consumers more than legislators.

Thomas Brändle (co-authored with Alois Stutzer)

Public Servants in Parliament: Theory and Evidence on Its Determinants in Germany

This paper addresses the personal linkages between the public administration and the legislature that emerge because public servants pursue a political mandate. There are concerns that the strong representation of bureaucrats in many Western parliaments compromises the constitutionally proposed political neutrality of the public service and generates a conflict of interest. We present a cost-bene t calculus and analyze speci c legal provisions for the German Laender to understand the selection of public servants into parliaments. Based on a novel data set, we nd that incompatibility rules decrease and abeyance compensation increases the fraction of public servants in Laender parliaments.

Lena Calahorrano and Philipp an de Meulen

Why Don’t Labor and Capital Flow Between Young and Old Countries?

To counter the effects of population aging in rich industrialized countries, raising immigration from and raising capital exports to younger developing countries are often seen as alternative solutions. In this paper, we explicitly account for mobility constraints in the form of immigration restrictions in industrialized countries and expropriation risk in developing countries to investigate whether efficiency gains from factor movements are likely to be realized. We set up a one-period general equilibrium model of two economies with young and old individuals, and investigate how the age structure in both countries affects the political-economy equilibrium. When the level of factor flows is determined by policy, large differences in age structures still encourage admitting more migrants. Meanwhile, the effect on FDI is ambiguous. The degree to which integrating immigrants is costly plays a crucial role for the size of labor flows. Emigration from the developing country decreases the young’s expropriation preferences but, if it changes the median voter’s identity from young to old, there is no FDI.

Maria Laura Di Tommaso (co-authored with Bonomi, Brose)

Gender quotas in Italy: A random utility model of voting behaviour

The share of elected positions held by women in democratic countries is still very small. To increase this share many countries have introduced gender quotas in their electoral rules. In Italy gender quotas, requiring a minimum number of women in electoral lists, have been introduced for elections at different levels of government. This type of quotas does not ensure in an open list electoral system that women will get more votes. This effect will depend on the extent to which there is an anti-female bias among voters. To test the presence of an anti-female bias in voting behaviour we set up a random utility model for voting behaviour. The model is then tested on the elections for regional councils in 1995 and 2000. The results show that a higher share of women in party lists leads to an increase in the probability that voters will choose a female candidate. Other important factors influencing voters’ behaviour are the length of the party list (the longer the party list, and thus the greater the size of electoral districts, the lower the probability of voting for an incumbent candidate) and the position of the party in terms of liberal values. The more the party is liberal in terms of these values, the higher the probability that a woman will be voted.

Giacomo De Luca

Strategic Registration of Voters: The Chilean Case

In this paper we investigate how the employment relationship, if it implies transfer of rents, may allow employers to control the voting behavior of their workers and lead to strategic registration of voters. This is feasible when individual voting behavior is observable, as in open ballot elections. More easily controlled voters are more likely to be registered providing a large impact of vote controlling on election results. Making individual vote truly secret (for instance with the adoption of a secret ballot) signi cantly reduces this control. Moreover, we show that as long as electoral districts are heterogeneous enough, i.e. contain also free voters, any attempt to control votes on the basis of district aggregate results is bound to fail. We test the predictions of the model by examining in detail the e ects of the introduction of the secret ballot in Chile in 1958.

Jan Fidrmuc

Making Change Happen? The Impact of EBRD Investment on Growth, Reform and Institutions in Post-communist Countries

The European Bank for Reconstruction and Development was set up in 1991 to foster private sector development and to encourage the creation of market economy in postcommunist countries. Between 1994 and 2007, the EBRD has spent 31.6 billion euros in loans and equity stakes, aimed at both private and public investment projects in the target countries. This paper assesses the return on this investment in terms of economic growth, progress in implementing market-oriented reform, and institutional change (democratization). The main finding is that EBRD investment failed to foster growth in post-communist countries but seems to encourage reform and democratization.

Martin Gassebner (co-authored Pierre-Guillaume Méon)

The effect of the protection and stability of creditor rights on the fifth wave of M&As

In this paper, we evaluate the impact of creditor rights and political risk on both the number and the value of cross-border M&A flows in a gravity model estimated with a Poisson regression, a negative binomial model, and Heckman’s two-stage selection model. Our results confirm that creditor-friendly rules and political risk decrease M&A inflows. The impact of formal legal rules is however mainly driven by politically stable countries, where those rules can be expected to hold. It therefore takes political stability for de jure rules to matter de facto.

Rajeev K. Goel and Iikka Korhonen

Exports and Cross-National Corruption: A Disaggregated Examination

This paper examines the connection between a country’s export structure and corruption,incorporating disaggregated data on exports for a recent time period over a large set of nations. We askwhether various types of exports (e.g. agricultural, mineral, manufacturing and fuel) exert similarinfluences on corruption across nations, and whether raw materials affect corruption in a similar way inleast- and most-corrupt nations. Our results suggest that corruption decreases as nations attainprosperity, as economic and political freedoms increase, and with a larger government size. Ceterisparibus, transition countries are also found to be more corrupt. Ethnic and linguistic fractionalizations exert opposite influences on corruption, while religious fractionalization does not seem to matter.Although the effects of ore and manufacturing exports are statistically insignificant, agricultural and fuel exports affect corruption significantly. Our quantile regression results suggest that fuel exports spur corruption in most-corrupt nations, while the effect of agricultural exports on corruption is statistically insignificant across all corruption levels. Our findings for fuel exports echo previousresearch, as well as uniquely demonstrate that the impact of fuel exports is sensitive to the prevailing corruption level. These findings are robust to the use of an alternate measure of corruption. We conclude with a discussion of policy implications.

Miriam Golden

The Electoral Underpinnings of Corruption in Rich and Poor Democratic Polities

This paper summarizes nearly a decade of research by the author into the causes and consequences of political corruption. Drawing on extensive original research into corruption over a forty year period in Italy, I seek to generalize the findings to other advanced democratic nations. The phenomenon of corruption in stable wealthy democracies is fundamentally different than in poor, typically non-democratic nations. In wealthy democracies, corruption is in general less frequent and its economic consequences are relatively modest. However, it is often tolerated for long periods of time by voters. I analyze in particular the latter puzzle: why voters dislike corruption but reelect corrupt incumbents. To assess whether corruption would be similarly tolerated in high-corruption low-income settings, I present the first results of an analysis using a newly-compiled dataset on political corruption in contemporary India. The data show that partisan-affiliated candidates for the national legislature who are charged with criminality are elected at twice the rate as non-charged candidates. In this setting, voters appear to display a strong preference for corrupt politicians. I speculate about why this might be, and discuss strategies for identifying precise causality.The paper draws on extensive original data and quantitative research and uses what systematic data is available on the various questions raised.

Hans Peter Grüner

Public goods, participation constraints, and democracy: A possibility theorem

It is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational. However, the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided. This paper instead considers majority voting with uniform cost sharing as the relevant status quo. Efficient mechanisms may then exist, which also satisfy all agents' interim participation constraints. In this case, ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual's expected utility. Intuitively, agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget. This possibility theorem is not universal in the sense of Schweizer (Games and Economic Behavior, 2005).

Colin Jennings

The Good, the Bad and the Populist: A Model of Political Agency with Emotional Voters

This paper attempts to extend existing models of political agency to an environment in which voting may be divided between informed and instrumental, informed and ‘expressive’ (Brennan and Lomasky (1993)) and uninformed due to ‘rational irrationality’ (Caplan (2007)). It constructs a model where politicians may be good, bad or populist. Populists are more willing than good politicians to pander to voters who may choose inferior policies in a large-group electoral setting because their vote is insignificant compared with those that voters would choose were their vote decisive in determining the electoral outcome. Bad politicians would ideally like to extract tax revenue for their own ends. Initially we assume the existence of only good and populist politicians. The paper investigates the incentives for good politicians to pool with or separate from populists and mainly focuses on three key issues – (1) how far the majority of voter’s preferences are from those held by the better informed good politician (2) the extent to which the population exhibits rational irrationality and expressiveness (jointly labelled as emotional) and (3) the cost involved in persuading uninformed voters to change their views in terms of composing messages and spreading them. This paper goes on to consider how the inclusion of bad politicians may affect the behaviour of good politicians and suggests that a small amount of potential corruption may be socially useful if it allows good politicians to win elections by separating and implementing good policy. It is also argued that where bad politicians have an incentive to mimic the behaviour of good and populist politicians, the latter types of politician may have an incentive to separate from bad politicians by investing in costly public education signals.

Krisztina Kis-Koatos (co-authored with Günther G. Schulze and Ahmet Turgut)

Terrorist Recruitment and the State of the Economy

We analyze whether economic conditions influence the recruitment patterns of Kurdish terrorists. Using a unique panel data set on deceased Kurdish PKK members covering 22 regions and the years 1990 to 2000 we show that terrorist recruitment increases with unemployment and decreases with GDP per capita. However, economic factors are less effective in PKK strongholds and they cannot explain the geographical concentration of recruitment pointing to the importance of other important determinants for recruitment.

Jamus Lim (and Jonathan Adams-Kane)

Institutions, Education, and Economic Performance

This paper considers the interactions between governance, educational outcomes, and economic performance. More speci cally, we seek to establish the linkages by which institutional quality a ect growth by considering its mediating impact on education. While the contribution of both human capital and institutions to growth are often acknowledged, the channels by which institutions a ect human capital and, in turn, growth, has been relatively underexplored. Our empirical approach adopts a two-stage strategy that estimates national-level educational production functions which include institutional governance as a covariate, and uses these estimates as instruments for human capital in cross-country growth regressions.

Christoph Lulfesman (co-authored with Kessler and Myers)

The Architecture of Federations: Constitutions, Bargaining, and Moral Hazard

The paper studies a federal system where a region provides non-contractible essential inputs for the successful implementation of a local public policy project with spill-overs, and where bargaining between different levels of government may ensure efficient decision making ex post. We ask whether the authority over the public policy measure should rest with the local government or with the central government, allowing financial relationships within the federation to be designed optimally. Centralization is shown to dominate when governments are benevolent. With regionally biased governments, both centralization and decentralization are suboptimal as long as political bargaining does not take place. With bargaining, however, the first best can often be achieved under decentralization, but not under centralization. At the root of this result is the alignment of decision making over essential inputs and project size under decentralized governance.

Alexander Mihailov (co-authored with Etienne Farvaque)

Intergenerational Transmission of Inflation Aversion: Theory and Evidence

We study the evolution of inflation aversion preferences across generations. The theoretical part of the paper analyzes the transmission of such preferences in an overlapping-generations model with heterogeneous mature agents characterized by differences in inflation aversion. We show how the dynamics of a society's degree of inflation aversion depends on the direction and speed of changes in the structure of the population's preferences. The empirical part then proposes two prominent and topical illustrations in support of our theoretical results. We first provide time-series evidence that demographic structures are one key driver of social preferences with regard to inflation. We then complement this by cross-section evidence on inflation aversion highlighting another of its main longer-run determinants, namely, income inequality.

Alireza Naghavi (co-authored with Kjetil Bjorvatn)

Natural resources, polarization and con?ict: A simple model of a complex relationship

The investigation into the sources of con?ict and civil war has received a lot of attention amongst economists in recent years. While empirical results point in di¤erent directions, many studies conclude that natural resource endowment (greed) and ethnic tensions (grievance) are important sources of con?ict. Moreover, the e¤ect of these factors and con?ict is often found to be non-monotonic, with maximum risk of con?ict caused by interemediate levels of rent and ethnic division. The present paper attempts to shed light on this complex relationship. Peace occurs either when a single group?s hold on power is unchallenged, which occurs when the rent and/or polarization is small. Similarly, peace can be upheld as a power-sharing coalition between groups. The stability of such a coalition is typically higher the higher is the rent and the level of polarization. Hence, risk of con?ict is highest for intermediate levels of rent and polarization, where power is challenged but a coalition is unstable.

Athanassios Pitsoulis

The Egalitarian Battlefield: Reflections On the Origins of the Majority Rule in Archaic Greece

Let him go first! Ares is a democrat. There are no privileged people on a battlefield. Archilochus (680–640 B.C.)
The ancient Greeks left an important political legacy which has long been almost exclusively a subject of three branches of scholarship: ancient history, political science and political philosophy. However, in recent years game theory, rational choice theory and political economy are increasingly being applied on the topic of Greek political institutions (see e.g. Quillin 2002, Teegarden 2007, Ober 2008, Fleck/Hanssen 2006, Kaiser 2007, Scholtz 2002, Lyttkens 2006, Morris 2004). It seems a truly “interdisciplinary field of classical democracy studies” is emerging (Ober 2007, 67). The fundamental question “where does democracy come from?” is thus increasingly demanding the attention not only of one branch of scholarship.

Niklas Potrafke (co-authored with Christian Bjørnskov)

Politics and privatization in Central and Eastern Europe: A panel data analysis

This paper examines how government ideology has affected privatization in Central and Eastern Europe after the transition from socialism. We analyze a panel of 19 Central and Eastern European countries in the period 1990 to 2007. Privatization is measured by indices provided by the European Bank for Reconstruction and Development (EBRD). To identify a set of political determinants, we explore the special characteristics of the analyzed emerging democracies and construct a new set of political variables. The results suggest that privatization was introduced by rightwing and market liberal governments. In the rapid transition process in the early 1990s, leftist governments stuck to public ownership much strongly than in the following period from the mid 1990s to 2007.

Julia Shvets (co-authored with Toke Aidt)

Spending and voting under the term limits in the Missouri House of Representatives, 1996-2005: A pilot study

This paper proposes a new test of the agenda setter effect in legislative bargaining. It is based on the natural experiment generated by the introduction of term limits in some US states. To implement this test wehave collected detailed data on legislators, committee membership, votes on appropriation bills, and fiscal transfers from the state budget to each legislative district during the period 1996 to 2005 for the Missouri House of Representatives. Compared to the predictions of the legislative bargaining model [Baron and Ferejohn (1989)], we find a number of stark differences. We are currently working on extending several aspects of this analysis to the data from a number of other US state legislatures.

Dana Sisak (co-authored by Philipp G. Denter)

Where ignorance is bliss, ’tis folly to be wise - the value of information in contests

We analyze a two-player Tullock contest with asymmetric valuations and one-sided asymmetric information. First, we give a general characterization of the equilibrium of the simple Bayesian game. Then we allow for information acquisition, which may be observable or not. We show that the uninformed player might have an incentive not to acquire information, or even pay to stay uninformed, when information acquisition is perfectly observable. In those situation she can use her ignorance as a strategic instrument. If spying is unobservable, however, in the only remaining equilibrium the uninformed player spies and both players choose there respective full information Nash equilibrium efforts.

Mor Zahavi

When is rational ignorance detrimental in group decision making?

The Condorcet's Jury Theorem (CJT) main spirit is that broad participation in group decision making has a merit. Its generalizations have formulated the less stringent conditions the theorem requires. However the main conclusion of the theorem was not altered. Feddersen and Pesendorfer (1996) have inquired whether less informed voters will vote although they decrease group competence. They show that 'swing' voters (which are assumed to be less informed) will abstain and let the other group members decide, provided that there is uncertainty regarding the actual number of voters. We wish to explore the conditions under which less informed voters decrease the competence of the group in the traditional CJT framework. The incorporation of our conclusions with uncertainty and different expressive utility from voting for different voters will enable us build the basis for a future benchmark model which deals with voting as in the game theoretic approach of Feddersen and Pesendorfer.

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