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.     

Inefficient policies and incumbency advantage

We present a model of (re)elections in which an incumbency advantage arises because the incumbent can manipulate issue salience by choosing inefficient policies in the policy dimension in which he is the stronger candidate. The voters are uncertain about the state of the world and the incumbent's choice of policy. Under complete information they would reelect the incumbent if and only if the state is sufficiently high. Undesirable policy outcomes may be due to either a bad state or the incumbent's choice of inefficient policies. The incumbent uses inefficient policies in intermediate states, whereby he creates uncertainty about the true state in such a way that voters are better off in expectation reelecting him. Hence the equilibrium exhibits an incumbency advantage that stems from asymmetric information and the use of inefficient policies.     

The pro-competitive effect of campaign limits in non-majoritarian elections

We study a model of elections in non-majoritarian systems that captures the link between competition in policies and competition in campaign spending. We argue that the overall competitiveness of the political arena depends on both the endogenous number of parties contesting the election and the endogenous level of campaign spending. These two dimensions are linked together through their combined effect on the total equilibrium level of political rents. We illustrate the key insights of the model with an analysis of the competitive effects of campaign spending limits. We show that under some conditions spending caps can be pro-competitive, leading to an increase in the number of parties contesting the elections.     

Elections and economic policy in developing countries

This paper explores the impact of elections on economic policies and governance in developing countries. We distinguish between a structural effect, which increases accountability, and a cyclical effect which may be disruptive. Since the effects are offsetting, neither can be analysed in isolation. We implement an econometric analysis on more than 80 developing countries using positive changes in the Country Policy and Institutional Assessment of the World Bank and the International Country Risk Guide as signalling improvements in economic policy and governance. We find that both structural and cyclical effects matter. The cyclical effect suggests that mid-term is the best moment for policy change. We investigate the structural effect by comparing different frequencies of elections. Except at the extremes, a higher frequency of elections improves both policy and governance net of any cyclical effect. The important exception to this benign net effect is if the electoral process is badly conducted. Badly conducted elections have no structural efficacy for policy improvement. A reasonable interpretation of our results is that honest elections increase accountability and thereby discipline governments to improve economic policy and governance, but that if candidates can win by fraud this chain is broken.
— Lisa Chauvet and Paul Collier     

Political Motivations

Are politicians motivated by policy outcomes or by the perks of office? To shed light on this important question, I develop a simple model of two candidate electoral competitions in which candidates may be either office or policy motivated . In a second departure from standard formulations, the model incorporates both campaign and post-election behaviour of candidates. In this environment, I find that office-motivated candidates are favoured in electoral competition but that their advantage is limited by the electoral mechanism itself and policy-motivated candidates win a significant fraction of elections. More importantly, I show that the competitive interaction among candidates of different motivations affects the incentives of all candidates—both office and policy motivated—and that this competition affects policy outcomes. I also extend the model to explore the decision of citizens to enter politics and show that in all equilibria policy-motivated citizens compose a majority of the candidate pool.     

Competition in the political arena and local government performance

Competition reduces rent extraction in private-sector firms. In this article, we empirically assess whether it similarly disciplines politicians by evaluating local-level governments’ performance in Flanders. The results indicate that electoral competition – measured via the number of parties competing in elections – significantly positively affects the productive efficiency of municipal policy. Intertemporal competition – measured as the volatility of election outcomes over time – has a similar, but weaker, positive effect. These beneficial effects are mitigated by the fact that competition may lead to more fragmented governments, which is shown to work against their productive efficiency. Overall, though, the beneficial effects outweigh the unfavourable ones in our sample.     

The timing of first marriage and subsequent life outcomes: Evidence from a natural experiment

We study the consequences of later marriage on subsequent life outcomes. China’s family planning policies in the early 1970s – before the One-Child Policy – regulated not only childbirth but also marriage. The recommended minimum marriage age of 25 years for men and 23 years for women was effectively relaxed when the government formally introduced the One-Child Policy and put greater emphasis on directly controlling fertility rather than marriage. Subsequently, we find that the marriage age, which had been increasing steadily since 1970, suddenly started to decline in the early 1980s. This policy shift provides us with an opportunity to apply a regression probability jump and kink design for the purpose of identification. Using data from the 2000 census, we establish that later-married men have fewer children and that later-married women are more likely to participate in the labor market. We find no consistent evidence that later marriage improves education, probably because most Chinese people marry after completing their education.     

A dynamic theory of parliamentary democracy

This paper presents a dynamic model of elections, government formation, and legislation in a parliamentary democracy with proportional representation in which the policy chosen in one period becomes the status quo for the next period. The electorate votes strategically by taking into account the likely governments that parties would form based on their representation and the policies they would choose as a function of the status quo. The status quo thus affects both the election outcomes and the bargaining power of the parties during government formation. A formateur party therefore has incentives to strategically position the current policy to gain an advantage in both the next election and the subsequent bargaining over government formation and policy choice. These incentives can give rise to centrifugal forces that result in policies that are outside the Pareto set of the parties.     

The quality-access tradeoff in decentralizing public services: Evidence from education in the OECD and Spain

Decentralized delivery of public services should enhance constituents’ ability to hold politicians accountable and improve public service outcomes, according to theory. Yet, decentralization has not consistently yielded those improvements. This paper uses a novel cross-country panel from the OECD to show that decentralization generally improves students’ access to education, but in so doing, it creates congestion effects which diminish the overall quality of education that students receive. We argue that this is partially explained by the incentives of sub-central governments upon receiving their new authority. Sub-central governments are more incentivized than national ones to pursue policy improvements that are more visible and quicker to achieve, even when they are costly – like improving access – over improvements that are less visible and take longer to achieve – like increasing quality. Decentralization should therefore result in positive effects on education access and negative on quality, consistent with our findings. We directly test the impact of political incentives on responses to decentralization by exploiting the timing of education decentralization in Spain (1980–99), and variation in the political assertiveness of regional governments, using generalized difference-in-differences and synthetic controls. As predicted, the magnitude of decentralization's effects is greater for assertive regions, which are most incentivized to prioritize high visibility, costly policies.     

Coping with a decline in world energy prices: Macroeconomic and income distribution effects in Thailand

This paper analyzes the effects of a short-run decline in world oil prices in Thailand. The outcomes of two policy responses are explored. What happens if — under a liberal policy - domestic prices follow world prices down in the short run and back up in the medium run? And what happens if — under a moderate policy - domestic prices are kept pretty much the same in both the short and medium runs? The SIAM2 Model tracked the effect of these policies on economic growth, on the resource balance, and on employment and the distribution of income. Over a 10-year horizon, growth is about the same under the two policies, though with differences for some periods and sectors. Nor is there much difference between the two policies in their effect on employment and income distribution — though the formal and informal sectors perform differently in different subperiods. The most important difference is in the resource balance. Under the liberal policy, the current account balance changes little, but it improves rapidly under the moderate policy.     

BROADCASTING AND TEAM SPORTS

Television rights are the largest component of revenues for major sports in large, rich nations. Among these nations, the market structure for rights varies due to different competition policies toward sports and television. This essay examines how game coverage, revenues, and competitive balance are affected by competition in commercial television and sales of rights. It argues that consumers are better off if television is competitive and leagues do not centralize rights sales. We conclude that centralization of rights sales does not improve competitive balance or benefit financially weak teams. Finally, while digital telecommunications are making television competitive, ending centralization of sales by leagues requires policy intervention.     

A general equilibrium analysis of parental leave policies

Despite mandatory parental leave policies being a prevalent feature of labor markets in developed countries, their aggregate effects in the economy are not well understood. To assess their quantitative impact, we develop a general equilibrium model of fertility and labor market decisions that builds on the labor matching framework of Mortensen and Pissarides (1994). We find that females gain substantially with generous policies but this benefit occurs at the expense of a reduction in the welfare of males. Leave policies have important effects on fertility, leave taking decisions, and employment. These effects are mainly driven by how the policy affects bargaining – young females anticipate future states with higher threat points induced by the policy. Because the realization of these states depends on the decisions of females to give birth and take a leave, leave policies effectively subsidize fertility and leave taking. We also find that generous paid parental leaves can be an effective tool to encourage mothers to spend time with their children after giving birth.     

Optimal fiscal policy in a model with inherited aspirations and habit formation

In this paper, we analyze optimal fiscal policies in an overlapping generations framework, where preferences exhibit aspirations in consumption and environmental quality as well as habit formation. We focus on the second best policies when the government needs to finance a given stream of public expenditures by using distortionary taxes. We derive necessary and sufficient conditions under which the competitive equilibrium is characterized by levels of capital and environmental quality that are too small and a level of labor supply that is too large. Our numerical simulations show that an optimal fiscal policy can be used as an effective stabilization device and that when consumption taxes are fixed, the planner implements maintenance investment and capital income subsidies while financing public spending through labor and fixed consumption taxes.     

Why we need a commitment approach to environmental policy

The principal reason why economists have advocated environmental policies based on incentives is that their conception of business behavior derives from the neoclassical model of the firm. Businesses certainly do respond to profit incentives, but firms' behavior is also greatly influenced by socio-political considerations and their organizational capabilities. In recent years, a significant group of businesses that are highly innovative, competitive and socially responsible has emerged. These are not the firms that policy makers envisioned when they formulated command and control and market incentive environmental policies, i.e., control-oriented policies. Because of this, there is a need for new types of environmental policies. Thus, the first purpose of this paper is to propose a new class of environmental policies. The second purpose is to explain why the neoclassical model is deficient as a basis for environmental policy and to explicate the nature of a more appropriate model.Control-oriented policies were designed for firms that behave like neoclassical firms. For high performance organizations (HPOs), what is needed is the opposite of control-oriented policy. What is needed is an environmental policy that takes advantage of HPOs commitment, responsibility, and trustworthiness. The appropriate policy should take into account that overall environmental performance is a product not just of firm behavior but of the whole environmental system of which firms are a part. What is needed is a commitment approach to environmental policy.A commitment approach (CA) to environmental policy is first of all not a control-oriented policy. A CA is a nonregulatory approach in which firms are self-regulated. The CA is only for firms that are able to 1) make a commitment to high environmental performance and 2) develop the capabilities to meet these commitments. The environmental protection (EP) agency that administers the CA would be charged with selecting the particular “high commitment” (HC) firms that would be subject to the policy. Low and intermediate commitment firms would presumably continue to be regulated under the usual control-oriented environmental policies. The selected HC firms would be eligible for government technical assistance and information. In addition, the EP agency could aid the functioning of the environmental systems (ES) in which HC firms are embedded by, for example, providing education and information to these businesses' stakeholders. Finally, it would be necessary for the EP agency to accomplish periodic assessments of how ESs performance departs from the ideal and how these systems' operations require rectification.     

The Effects of Fiscal Consolidation and Welfare Composition of Spending on Electoral Outcomes: Evidence from US Gubernatorial Elections between 1978 and 2006

This study attempts to make a contribution to the field of spending aspects of fiscal policy and their impacts on electoral outcome. Due to varying degrees of financial responsibilities and commitments to provide public goods and services, US state governments serve as a perfectly natural laboratory to test the electoral significance of fiscal policies. We adopt a probit model, with several specifications, to determine significant impacts of fiscal consolidation and increases in welfare spending on US gubernatorial elections from 1978 to 2006. The analyses show that voters are more concerned about the increase in debt than current budget deficits. An increase in welfare spending is negatively associated with reelection. Moreover, the impact of taxation on gubernatorial elections turns out to be insignificant. In particular, findings suggest that the political business cycle model does not hold true in US gubernatorial elections. Expansionary fiscal policy right before the election may not have crucial impacts on the chances of an incumbent winning the election.     

Impact of peer comparisons and firm heterogeneity on nonpoint source water pollution: An experimental study

Greg Poe was a pioneer in using experimental economics to test theories and potential policies for controlling ambient pollution. His foundational work showed that, in some settings, policies could induce groups to reduce their nonpoint source (NPS) pollution to socially-efficient levels. Poe’s earlier studies assumed firms were homogeneous, which laid the groundwork for subsequent research to investigate the effect of firm heterogeneity on policy outcomes. We build on the research foundation laid by Poe and his colleagues by using an economic experiment to test the effects of four types of firm heterogeneity and three social norm information treatments on the performance of an ambient tax/subsidy policy. Our experimental results show that heterogeneity reduces the effectiveness of the ambient tax/subsidy policy, but that information nudges can improve outcomes even when there is considerable heterogeneity in the policy environment. Participants were also better able to find and retain their dominant strategies when they were provided with information about similar firms, suggesting that individually-targeted information is more effective than information about aggregate group-level decisions.     

MACROECONOMIC POLICY AND ELECTIONS IN OECD DEMOCRACIES*

The purpose of this paper is to test for evidence of opportunistic “political business cycles” in a large sample of 18 OECD economies. Our results can be summarized as follows: 1) We find very little evidence of pre-electoral effects on economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of “political monetary cycles,” that is, expansionary monetary policy in election years; 3) We also observe indications of “political budget cycles,” or “loose” fiscal policy prior to elections; 4) Inflation exhibits a post-electoral jump, which could be explained by either the pre-electoral “loose” monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.     

Tying the politicians’ hands: The optimal limits to representative democracy

The citizen candidate models of democracy assume that politicians have their own preferences that are not fully revealed at the time of elections. We study the optimal delegation problem which arises between the median voter (the writer of the constitution) and the (future) incumbent politician under the assumption that not only the state of the world but also the politician's type (preferred policy) are the policy‐maker's private information. We show that it is optimal to tie the hands of the politician by imposing both a policy floor and a policy cap and delegating him/her the policy choice only in between the cap and the floor. The delegation interval is shown to be the smaller the greater is the uncertainty about the politician's type. These results are also applicable to settings outside the specific problem that our model addresses.     

Private polling in elections and voter welfare

We study elections in which two candidates poll voters about their preferred policies before taking policy positions. In the essentially unique equilibrium, candidates who receive moderate signals adopt more extreme platforms than their information suggests, but candidates with more extreme signals may moderate their platforms. Policy convergence does not maximize voters' welfare. Although candidates' platforms diverge in equilibrium, they do not do so as much as voters would like. We find that the electorate always prefers less correlation in candidate signals, and thus private over public polling. Some noise in the polling technology raises voters' welfare.     

Advocacy and political convergence under preference uncertainty

We study the formation of advocacy groups and how they can impact policy outcomes by revealing information about voters׳ preferences to uninformed political candidates. We conduct a laboratory experiment based on a two-candidate spatial electoral competition setting where the policy preferences of voters are (initially) unknown and change over time. In the control treatment candidates learn about the preferred policy of the median voter through the voting outcome of elections. In the advocacy treatments, voters can organize themselves into advocacy groups in order to reveal their policy preferences. We find that voters often overcome the collective action problem of forming an advocacy group. In fact, we observe the formation of both informative advocacy groups, which convey new information, and uninformative advocacy groups, which do not. Overall, advocacy groups significantly speed up the convergence to the preferred policy of the median voter. However, advocacy does not lead to higher earnings as the gains from faster convergence are offset by the costs of group formation.