The political economy of constitutional choice: a study of the 2005 Kenyan constitutional referendum

Recent studies of the linkages between the wealth of nations and the institutions of governance suggest that concentrating political power in a monarchy or a ruling coalition impedes economic growth and, moreover, that while power-diffusing reforms can enhance the wellbeing of society in general, opposition by groups benefiting from the status quo is predictable. In November 2005, Kenyans rejected a proposed constitution that, despite promises made by their new chief executive, would not have lessened the powers of the presidency. Using a unique, constituency-level dataset on the referendum vote, we estimate a model of the demand for power diffusion and find that ethnic groups’ voting decisions are influenced by their expected gains and losses from constitutional change. The results also highlight the importance of ethnic divisions in hindering the power-diffusion process, and thus establish a channel through which ethnic fragmentation adversely impacts economic development.     

The family and the state: a public choice perspective

The Review of Austrian Economics - The family is an institution within which exchange takes place. The state depends on the productivity of families for its current and future revenues. Yet, work...     

Constitutional design for a rent-seeking society: Voting rule choice

If rent-seeking costs are considered in addition to, and separate from, external costs and decision costs in Buchanan and Tullock's economic theory of constitutions, total interdependence costs may have multiple local minima close to the decision-making extremes. As a result, the global minimum, which gives the optimal decision rule, may be much closer to “unanimity rule” or “individual rule” than to “simple majority rule”. Further, the comparison of the minimum total interdependence costs for the public sector with those for the private sector would only justify a smaller scope and size for the public sector than would be the case if rent-seeking costs were ignored. Finally, systematic variation in rent-seeking cost could account for dramatic regime shifts between dictatorship and democracy.     

Using observational analysis of multiple sclerosis relapse to design outcomes-based contracts for disease-modifying drugs: a feasibility assessment

Abstract

Objective:

To assess predictors and costs of multiple sclerosis (MS) relapse, a potential outcome measure in payer-manufacturer risk-sharing agreements for disease-modifying drugs (DMDs).

Methods:

A retrospective cohort analysis of medical/pharmacy claims was used. Study patients had ≥1 DMD (interferon beta, glatiramer, natalizumab) claim, without DMD claims in a 6-month pre-period before DMD initiation; were aged 18–64 years and continuously enrolled from the pre-period through a 24-month post-period; and had ≥2 MS medical claims during the 30-month study period. Post-period relapse cohorts included: (1) severe (hospitalization with MS diagnosis); (2) moderate (outpatient services including intravenous methylprednisolone); and (3) none. Poisson regression modeled severe relapse frequency, logistic regression modeled ≥1 severe relapse, and generalized linear modeling predicted healthcare costs. Tested predictors included demographics, insurance type, index DMD, pre-period health status, and DMD medication possession ratio (MPR).

Results:

Severe relapse was experienced by 14.5% and moderate relapse by 13.8% of 2291 patients. In logistic regression, severe relapse was predicted by plan type; age (odds ratio [OR]?=?1.018, 95% confidence interval [CI]?=?1.005–1.031); pre-period Charlson Comorbidity Index (OR?=?1.307, 95% CI?=?1.166–1.464); pre-period proxy measure indicating impaired activities of daily living (OR?=?1.470, 95% CI?=?1.134–1.905); pre-period MS hospitalization (OR?=?2.174, 95% CI?=?1.537–3.074); and DMD non-adherence (MPR OR?=?0.101, 95% CI?=?0.068–0.151). Poisson regression results were similar. Predicted mean [standard deviation] all-cause healthcare expenditures were tripled for patients with severe compared with moderate relapse ($48,173 [$8665] and $13,334 [$1929], respectively).

Limitations:

Commercially insured patients from a single payer; use may have been inconsistent with approved indications; proxy relapse measure may have misclassified patients.

Conclusions:

Severe MS relapses requiring hospitalization, although affecting less than 15% of patients initiating DMD treatment, are associated with high medical costs. The only actionable predictor of severe relapse identified in observational analysis was MPR, raising questions about the feasibility of using observational data to guide outcomes-based contracting.     

Direct democracy in Australia: Voter behavior in the choice between constitutional monarchy and a republic

Opinion polls conducted throughout the 1990s indicate most Australians favor a republic. A referendum making that constitutional change, however, was defeated. This paper investigates whether voters employ a loss-minimization rule, as opposed to a value-maximization rule, when making political decisions. Based on the predictions of each rule, political strategies are devised and compared to the official arguments employed by republicans and monarchists during the period preceding the vote. Empirical research relates voting outcomes at the individual voter level to influences that are likely to be correlated with political risk aversion. The results are consistent with the conclusion that voters do not employ value-maximization rules.     

Regulation and administered contracts revisited: Lessons from transaction-cost economics for public utility regulation

This article reexamines the administered contracts approach to regulation in light of recent empirical research that establishes the importance of transaction-costs in the organizational choice and design decisions. After reviewing the fundamentals of transaction cost reasoning and the franchise bidding-versus-regulation debate, the study surveys the empirical literature on franchise bidding, contracting, and vertical integration. The implications of transaction-cost theories for current policies toward pubic utility regulation and deregulation are also addressed.We would like to thank Michael Crew, Victor Goldberg, Mark Lowry, Claude Menard, and Roger Sherman for helpful comments.     

Fragile democracies and constitutional crises: a laboratory for studying the role of constitutional constraints

Constitutional Political Economy -     

Social preferences and public economics: Mechanism design when social preferences depend on incentives

Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent.     

Strategy-proof and individually rational social choice functions for public good economies: A note

Summary. Serizawa [3] characterized the set of strategy-proof, individually rational, no exploitative, and non-bossy social choice functions in economies with pure public goods. He left an open question whether non-bossiness is necessary for his characterization. We will prove that non-bossiness is implied by the other three axioms in his characterization. Received: October 17, 1997; revised version: January 19, 1998     

Estimation of the public benefits of urban water supply improvements in Ethiopia: a choice experiment

Improving existing drinking water supply services in developing countries depends crucially on available financial resources. Cost recovery rates of these services are typically low, while demand for more reliable services is high and rapidly growing. Most stated preference-based demand studies in the developing world apply the contingent valuation method and focus on rural areas. This study examines household Willingness to Pay (WTP) for improved water supply services in a choice experiment in an urban area in Ethiopia, a country with the lowest water supply coverage in Sub-Saharan Africa. The design of the choice experiment allows estimation of the value of both drinking water supply reliability and safety. The estimated economic values can be used in policy appraisals of improved supply investment decisions. Despite significant income constraints, households are willing to pay up to 80% extra for improved levels of water supply over and above their current water bill. Women and households living in the poorest part of the city with the lowest service levels value the improvement of water quality most. As expected, also averting behaviour and expenditures play an important role.     

Islamic constitutionalism and rule of law: a constitutional economics perspective

This study investigates the relationship between Islamic constitutionalism and rule of law. Al Azhar, one of the most respected Sunni religious institutions in the world, developed a model of an Islamic constitution. This study uses Al-Azhar’s constitution as a model of Islamic constitutionalism and examines its stance in regard to the rule of law. We find the Al-Azhar’s constitution to be incompatible with essential concepts of rule of law. For example, the powers vested in the head of the Islamic state are enormous, making the executive branch of government far superior to the legislative and judicial branches. Women and non-Muslims are explicitly discriminated against throughout the constitution. Moreover, laws stemming from this constitution are not stable since many differences exist among schools of Islamic jurisprudence (fiqh). Consequently, we show that state-of-the-art Islamic constitutionalism lacks essential components needed in any constitution based on rule of law.     

Financial liberalization,private investment and portfolio choice: Financialization of real sectors in emerging markets

Using firm level panel data, we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing in irreversible long-term fixed investments, firms may choose to invest in reversible short-term financial investments depending on respective rates of returns and the overall uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments.     

On economic games which are not necessarily superadditive: Solution concepts and application to a local public good problem with few a agents

Core-like solution concepts based on stable coalition structures are studied in the context of games which are not necessarily superadditive. It is shown that a simple economic model involving local public goods financed by wealth taxes has this characteristic.     

An analysis of the length of labour and financial contracts: a study for Spain

This study investigates the connection between the duration of financial contracts and that of labour contracts. Workers with long–term contracts have incentives to invest in training. This makes them attractive to the entrepreneur. Furthermore, this behaviour will be reinforced if financial contracts are long–term, because it reduces the probability of an early liquidation as well as the dismissal of trained workers. As a conclusion, significant increases in the length of financing contracts should be accompanied by corresponding increases in the length of labour contracts. Support for this theoretical contention is found by testing it on a dataset composed of Spanish manufacturing firms for the period 1991–2000.     

Learning dynamics for mechanism design: An experimental comparison of public goods mechanisms

In a repeated-interaction public goods economy, incomplete information and dynamic behavior may affect the realized outcomes of mechanisms known to be efficient in a complete information one-shot game. An experimental test of five public goods mechanisms indicates that subjects with private information appear to best respond to recent observations. This provides predictions about which mechanisms will generate convergence to their efficient equilibrium allocations. These predictions match the experimental result that globally stable efficient mechanisms realize the highest efficiency in practice. The simplicity of the suggested best response model makes it useful in predicting stability of mechanisms not yet tested.     

Integrating public demands into model-based design for multifunctional agriculture: An application to intensive Dutch dairy landscapes

The contribution of agriculture to the welfare of society is determined by its economic, social and environmental performance. Although theoretical discussions can be found in the literature, few reports exist that integrate the social demand for multifunctional agriculture in the evaluation of the sustainability and the global welfare of society. This paper presents a methodology that combines economic valuation, integrated modelling, stakeholder analysis, and multi-criteria evaluation. It consists of three steps to determine: (1) social demands for multifunctional agriculture; (2) feasible technical alternatives available from the supply part of the market; (3) the net utility of alternatives for society measured as the change in social net benefit, i.e. the sum of changes compared to the current situation expressed in utility of market and non-market net benefits. Market net benefits are represented by their monetary value. Quality Function Deployment combined with Analytic Network Process (QFD/ANP) were used to estimate the non-market net benefits. The methodology is applied to the case study of a dairy-farming based agricultural landscape in the Northern Friesian Woodlands, The Netherlands. Social net benefit depended on land use, i.e. pasture management regimes on each of the agricultural fields and on presence or absence of hedgerows around the fields. Changes in market net utility were expressed in terms of changes for farmers, consumers and government. Changes in non-market net utility were expressed in terms of changes in landscape quality, nature value and environmental health for Dutch society as a whole, as estimated from European public surveys (Eurobarometer). The complete solution space defined by the market and non-market net benefits of landscapes with alternative patterns of land use was estimated to offer insight in the trade-off between market and non-market performance and enable selection of ‘icon’ landscapes to target or avoid. Improvement of the current landscape towards the social optimum would involve changes in pasture management resulting in higher gross margin for farmers, slightly relaxing current environmental restrictions, which could be reached at lower levels of subsidies in agri-environmental programs. In addition to such overall optimum the results demonstrate the trade-off between market and non-market benefits and the characteristics of current, utopian and dystopian landscapes. The approach provides an alternative to current economic valuation methods which focus on assessment of economic value as an input to analysis. Here, economic value emerges as the trade-off between market and non-market functions which is an output of the analysis.     

Institutional changes and shifting ideas: a constitutional analysis of the Euro

This paper uses the logical tools of Constitutional Economics to analyze the creation of the Euro, considering the entire process as the outcome of a conflict between different rules or, if you will, between different monetary systems, moving from the system of flexible exchange rates to a system of fixed exchange rates and ultimately to the single currency. The conflict between monetary systems has been acted out according to the single states’ collective preference functions, with both full employment and price stability figuring among the weights of said preference functions. The “solution” of the single currency was conceived when the body of information available to the policymakers was “simplified” by the new classical macro-economy taking a hegemonic role.