Voting blocs, party discipline and party formation

I study the strategic incentives to coordinate votes in an assembly. Coalitions form voting blocs, acting as single players and affecting the policy outcome. In an assembly with two exogenous parties I show how the incentives to accept party discipline depend on the types of the agents, the sizes of the parties, and the rules the blocs use to aggregate preferences. In a game of fully endogenous party formation, I find sufficient conditions for the existence of equilibria with one bloc, two blocs, and multiple blocs.     

A model of endogenous political party platforms

Summary. We develop a model of endogenous party platform formation in a multidimensional policy space. Party platforms depend on the composition of the parties primary electorate. The overall social outcome is taken to be a weighted average of party platforms and individuals vote strategically. Equilibrium is defined to obtain when no group of voters can shift the social outcome in its favor by deviating and the party platforms are consistent with their electorate. We provide sufficient conditions for existence of equilibria.Received: 20 November 2002, Revised: 21 August 2003JEL Classification Numbers: D72, C62.Correspondence to: Ignacio Ortuño-OrtínWe thank A. Caplin, S. Chattopadhyay, C. Martinelli and J. D. Moreno-Ternero and two anonymous referees for helpful comments. This research started while Ortuño-Ortín was a visitor in the Department of Economics at NYU; he thanks for the kind hospitality of this institution. F. Marhuenda and I. Ortuño-Ortín gratefully acknowledge financial support from the Spanish Ministry of Science and Technology Project BEC2001-1653 and Project BEC2001-0980, respectively; A. Gomberg gratefully acknowledges the financial support from the Asociación Mexicana de Cultura.     

A model of the political process with party loyalty

This paper examines a model where voters consider the parties they can vote for as being differentiated objects of choice. It is shown that this simple modification of the standard ‘median voter model’ can have important implications as regards the outcome of the political process. In particular, policies may be adopted which favour a minority at the expense of the majority. This result complements those found in the theory of regulation.     

Impact of institutions on social network formation: communist party membership and social network investment in China

Using the 2003 wave of China General Social Survey (2003CGSS), we study the influence of the communist party on individual’s social networks in urban China and, thereby, present a case of socio-political institutions being an important ingredient in social network formation. We adopt a counterfactual framework and estimate the effect of communist party membership on social network investment as an average treatment effect. We find the treatment to be significant.     

Moderation of an ideological party

It is a common fear in many countries that ideological parties will come to power through elections but will implement extreme policies. Many countries cope with this problem by overriding the election results when such parties are elected. We demonstrate that the alternative approach of containing these parties within the democratic system is more effective. We show that, as the probability of state's intervention in the next elections increases, an ideological party implements a more extreme policy in equilibrium. This hurts the median voter. Our main result shows that from the median voter's perspective, the optimal intervention scheme can be implemented by committing not to intervene and adjusting election times appropriately. That is, elections are a better incentive mechanism than the threat of a coup.     

A theory of tolerance

We propose a theory of tolerance where endogenous lifestyles and exogenous traits are invested with symbolic value by people. Value systems chosen by parents for their children affect the esteem enjoyed by individuals in society. Intolerant individuals attach all symbolic value to a small number of attributes and are irrespectful of people with different ones. Tolerant people have diversified values and respect social alterity. We study the formation of values attached to various types of attributes and identify circumstances under which tolerance spontaneously arises. Policy may affect the evolution of tolerance in distinctive ways, and there may be efficiency as well as equity reasons to promote tolerance. An empirical investigation of tolerance of homosexuality demonstrates that our theory helps to shed light on survey data of endorsed values.     

A theory of reciprocity

People are reciprocal if they reward kind actions and punish unkind ones. In this paper we present a formal theory of reciprocity. It takes into account that people evaluate the kindness of an action not only by its consequences but also by its underlying intention. The theory is in line with the relevant stylized facts of a wide range of experimental games, such as the ultimatum game, the gift-exchange game, a reduced best-shot game, the dictator game, the prisoner's dilemma, and public goods games. Furthermore, it predicts that identical consequences trigger different reciprocal responses in different environments. Finally, the theory explains why outcomes tend to be fair in bilateral interactions whereas extremely unfair distributions may arise in competitive markets.     

A theory of codetermination

Summary and conclusions This paper has developed a framework of theory within which codetermination, collective bargaining, individual bargaining, and workers' management may be compared. This has required a rather long digression on the theory of labor contracts in general when effort is endogenous but is wholly specified by the contract (section II) and when effort is multidimensional and labor contracts are incomplete (section III). When labor contracts are incomplete, suboptimization behavior results, and this in turn implies inefficiency. The inefficiency is displayed in a maximization problem by a structure which formally resembles the Lipsey-Lancaster second-best solution. Codetermination permits improved efficiency by creating a context of joint management decision in which some of the free variables may be jointly determined, with the result that some second-best constraints are relaxed. Thus the theory allows a possibility that power-sharing can in itself shift the effort-productivity frontier outward. This is an empirical question, of course, but one which is excluded from consideration by theories in the neoclassical and Illyrian tradition which are based on homogenous labor and complete labor contracts. Thus, the theory set forth here should supplant the less general neoclassical and Illyrian hypotheses unless and until evidence is offered which supports those hypotheses.The author is indebted to an anonymous referee for several suggestions which improved the paper, to W. Lynn Holmes and Paul Rappoport of Temple University and to Samuel Shrager of Temple University and Vilanova University for clarifying discussions on several aspects of the paper. The author is also indebted to other Temple University colleagues and to other scholars too numerous to mention for their help and encouragement. Errors and omissions are the fault of the author.     

A spatial model of corporate tax incidence

Using a unique, self-compiled data-set on international tax rates, we explore the link between taxes and manufacturing wages for a panel of 66 countries over 25 years. We find, controlling for other macroeconomic variables, that wages are significantly responsive to corporate taxation. Higher corporate tax rates depress wages. Using spatial modelling techniques, we also find that tax characteristics of neighbouring countries, whether geographic or economic, have a significant effect on domestic wages. We test for, and reject, spatial autocorrelation in our model using a modification of the Moran-I test statistic that accounts for country-specific fixed effects in a panel data setting. Our article fits in with the new economic geography literature as well as the urban economics literature which attempt to explain the spatial distribution of wages.     

On the benefits of party competition

We study the role of parties in a citizen-candidate repeated-elections model in which voters have incomplete information. We first identify a novel “party competition effect” in a setting with two opposing parties. Compared with “at large” selection of candidates, party selection makes office-holders more willing to avoid extreme ideological stands, and this benefits voters of all ideologies. We then allow for additional parties. With strategic voting, citizens benefit most when the only two parties receiving votes are more moderate. With sincere voting, even with three parties, extreme parties can thrive at the expense of a middle party; and whether most citizens prefer two or three parties varies with model parameters.     

A theory of policy advice

This article analyzes a model of the policy decision processin ministerial governments. A spending minister and a financeminister are involved in making a decision concerning a publicproject. The two ministers have partially conflicting preferences.Policy decisions are made in two stages. In the first stagethe spending minister consults a technical expert to obtaininformation about the technical consequences of the project.If the technical consequences are favourable, in the secondstage the finance minister consults a financial expert to obtaininformation about the financial consequences. The finance ministercan veto a proposal for undertaking the project. This articleillustrates the consequences of specialization for informationtransmission. A drawback of specialization is that projectsare evaluated on the basis of their individual consequencesrather than on the basis of their total consequences.     

A theory of political cycles

We study how the proximity of elections affects policy choices in a model in which policymakers want to improve their reputation to increase their reelection chances. Policymakers' equilibrium decisions depend on both their reputation and the proximity of the next election. Typically, incentives to influence election results are stronger closer to the election (for a given reputation level), as argued in the political cycles literature, and these political cycles are less important when the policymaker's reputation is better. Our analysis sheds light on other agency relationships in which part of the compensation is decided upon infrequently.     

A theory of anticipated utility

A new theory of cardinal utility, with an associated set of axioms, is presented. It is a generalization of the von Neumann-Morgenstern expected utility theory, which permits the analysis of phenomena associated with the distortion of subjective probability.     

A nonbehavioral theory of saving

The article presents a demand-driven model, where the saving rate of households at the bottom of the income distribution becomes the endogenous variable that adjusts for full employment to be maintained over time. An increase in income inequality and the current account deficit and a consolidation of the government budget lead to a decrease in the saving rate of the household sector. Such a process is unsustainable because it leads to an increase in the debt-to-income ratio of the households and its maintenance depends on some kind of asset bubble. This framework allows us to better understand the factors that led to the Great Recession in the United States and the dilemma of the present and the future regarding a repeat of this unsustainable process or secular stagnation.     

A theory of user-fee competition

We develop a two-region model where the decentralized provision of spillover goods and other public expenditures is financed by means of user fees. We show that a decentralized solution tends to be inefficient. If the regional spillover goods are substitutes, user fees tend to be inefficiently low, whereas they tend to be inefficiently high if the spillover goods are complements.