Mass-Elite Equilibrium of Federal Constitutional Legitimacy

William Riker ((1964) Federalism: Origin, Operation, Significance. Boston: Little Brown) stressed the problem of the contested nature of federal institutions and argued that federations existed amidst the ongoing challenge to their rules, that federal institutions were being continuously endogenously produced in the interaction of political parties rather than serving as self-enforceable constraints on the political process. As parties changed, so did federalism, and eventually the balance was bound to shift to either one or the other extreme as far as the degree of centralization was concerned. An alternative approach to essentially the same problem of federal instability was to conceptualize the underlying game differently, as a game of coordination, so that institutions would be accepted as constraints and would therefore be self-enforceable because they allow the players to avoid the chaos and successfully converge to an outcome with payoffs exceeding their reservation values (Hardin, 1989, Ordeshook, 1992). The third proposed solution, consociationalism, emphasizes the elite effort to overcome the conflictual nature of the institutional choice (Lijphart, 1977). Here, as in the coordination argument, the hope is that one could create incentives for politicians to view the existing rules as advantageous and to avoid redistribution by means of the institutional revision. Yet, just like the coordination argument, it is based on an implicit assumption that politicians are more easily motivated to act “cooperatively” than are their constituencies. The missing step in the literature is the mechanism by which this more or less “cooperative” behavior of elected politicians could be sustainable in the environment of popular accountability. An essential component in building the theory of institutional design is to show the possibility in a democracy of elected politicians cooperating on institutional matters even when each of their constituencies would prefer to adjust the constitutional terms to its own advantage. Elite “cooperativeness” must be sustainable even in the presence of outside challengers promising to stay closer to the constituent preferences. Here, I present a model of mass-elite equilibrium of constitutional legitimacy, which demonstrates the possibility to motivate the incumbents to sustain the institutional stability while at the same time protecting them from electoral defeat. I also discuss the difficulties and limitations that such a solution faces, in particular, in plural societies. JEL classification: H77, D02 In working on this paper, I have benefited from the discussions with Mikhail Filippov, Peter Ordeshook, Charles Kromkowski, Carol Mershon, and from the comments of the participants of the conference on ‘‘Micro-Foundations of Federal Institutional Stability’’ at the MicroIncentives Research Center at Duke University, Durham, NC, April 30–May 1, 2004, and of the Lansing Lee proseminar at the University of Virginia. The responsibility for the many remaining flaws is solely mine.     

A generalized theorem of the maximum

Summary This paper generalizes the Theorem of the Maximum (Berge [2]) to allow for discontinuous changes in the domain and the objective function. It also provides a geometrical version of the (generalized) theorem.This research was supported in part by National Science Foundation Grant SES-86-19012. Financial assistance was also provided, for Lawrence Ausubel, by the Lynde and Harry Bradley Foundation, and for Raymond Deneckere, by the Kellogg School of Management's Beatrice/Esmark Research Chair. We thank Alejandro Manelli and Israel Zang for many helpful conversations.     

Evolutionary foundations of aggregate-taking behavior

Summary. I show that aggregate-taking behavior is often evolutionarily stable for finite population in symmetric games in which payoff depends only on own strategy and an aggregate. I provide economic examples exhibiting this phenomenon. Received: August 27, 2001; revised version: January 29, 2002 RID="*" ID="*" The paper has profited from the comments of Maria Montero, Burkhard Hehenkamp, Wolfgang Leininger, and Dave Furth. Financial support from the DFG via Postgraduate Programme at the University of Dortmund and via SFB 504 at the University of Mannheim is acknowledged. RID="*" ID="*" Present address: University of Mannheim, SFB 504, L 13, 15, 68131 Mannheim, Germany (e-mail: possajen@sfb504.uni-mannheim.de)     

Medical insurance with rank-dependent utility

Summary. A well-known result in the medical insurance literature is that zero co-insurance is never second-best for insurance contracts subject to moral hazard. We replace the usual expected utility assumption with a version of the rank-dependent utility (RDU) model that has greater experimental support. When consumers exhibit such preferences, we show that zero co-insurance may in fact be optimal, especially for low-risk consumers. Indeed, it is even possible that the first-best and second-best contracts are identical. In this case, there is no “market failure”, despite the informational asymmetry. We argue that these RDU results are in better accord with the empirical evidence from US health insurance markets. Received: February 26, 2001; revised version: October 4, 2002 RID="*" ID="*"The authors would particularly like to thank Simon Grant, John Quiggin, Peter Wakker and an anonymous referee for valuable comments and suggestions on earlier drafts. The paper has also benefitted from the input of seminar audiences at The Australian National University, University of Auckland, University of Melbourne and University of Sydney. Ryan also gratefully acknowledges the financial support of the ARC, through Grant number A000000055. Correspondence to:R. Vaithianathan     

Changing rewards in contests: Has the three-point rule brought more offense to soccer?

In the mid-nineties FIFA decided to increase from two to three the number of points assigned to the winning team of a soccer match played under traditional round-robin national leagues. Since a game of soccer can be regarded as a contest, FIFA's measure provides an interesting case-study for analysing how a change in the system of rewards (from a zero to a non-zero sum rule) may affect the contestants' equilibrium behaviour. In this paper we try to assess, both theoretically and empirically, whether FIFA's new point rule has changed soccer towards a more offensive game, in which teams adopt more risky strategies. In particular, we evaluate the “na?ve hypothesis” according to which the measure would induce every team to play always more offensively, and we explore the extent to which the change in teams' behaviour may be affected by quality differentials between teams. Our most important hypothesis is that when the asymmetry between opposing teams is large enough, an increase in the reward for victory induces the weaker team to play more defensively, rather than the opposite. By looking at a subset of matches held in the Portuguese first division league, which approximate the conditions of our model, we find support for this hypothesis. First version received: July 1999/Final version received: May 2001     

Earnings management by firms announcing earnings after SEC filing

This study examines motivation and stock market reactions of firms announcing earnings in the Wall Street Journal (WSJ) after filing with the Security Exchange Commission (SEC). Most firms announce earnings in the WSJ before SEC filing. Firms that reverse this sequence are voluntarily delaying public earnings announcements. The authors find that these firms are not only poor financial performers but also engage in earnings managements. They are delaying their WSJ announcements to postpone announcing bad news. The authors find significant stock price reactions to both the SEC filing and the WSJ announcement. The price reaction to earnings is incomplete at the SEC filings. The market continues reacting to firms' subsequent WSJ announcements as if the SEC filing fails to communicate earnings information to some investors.     

A Survey and a Theoretical Model of Distance Education Programs

In search of a distance education programs crucial success factors, this research was conducted through a designed survey and evaluation instrument, for a predominantly doctoral program at DE University (DEU, an adopted name). Also, the survey has identified some challenging factors along with students most crucial reasons for adopting distance education programs. The author has presented a Testable theoretical model of distance education programs. The top four success factors were revealed to be program quality, general recognition and academic integrity, students satisfaction, and students progress toward the ultimate goal of graduation. Lack of time and worries about the degree recognition by prospective academic and nonacademic employers were the most crucial challenging factors.The 57th International Atlantic Economic Conference Lisbon, Portugal, March 10–14. This research is appreciably funded by a research grant from Walden University.     

Product differentiation and dynamic price behavior in fish markets

The objective of this paper is to estimate the dynamics of aquaculture and fish prices as a response to price shocks. The vector autoregression approach will be used to explain the dynamics of the sea bream market in both cultured and wild fishing. The main result is that changes in public regulation or in production conditions could stimulate production responses which may take time to settle. Usually, the change is a matter of adjusting between equilibria over a period of time, with the pattern and speed of the adjustment, depending on the nature and degree of disequilibrium in the fishing system. Comments from reviewers have been incorporated into the paper and are gratefully acknowledged. Financial support was provided by Direcció General de Recerca, Departament d'Universitats, Recerca i Societat de la Informació project N^o SGR2001-160.     

Corporate governance in family-controlled firms in Taiwan

This paper examines the effects of ownership structure and board characteristics on performance in publicly traded Taiwanese firms that are controlled by founding families. Results show that when shares are owned by institutional investors, particularly foreign financial institutions, firms perform better. However, where families are the major shareholders, this is not the case. In addition, boards that are independent of the financial interests of the founding family have a positive impact on performance, whether measured by accounting ratios, operating performance or the stock market. (JEL: P52, G32)     

Structure,Clearinghouses and Symmetry

We introduce and justify a taxonomy for the structure of markets and minimal institutions which appear in constructing minimally complex trading structures to perform the functions of price formation, settlement and payments. Each structure is presented as a playable strategic market game and is examined for its efficiency, the number of degrees of freedom and the symmetry properties of the structure