Dissent in monetary policy decisions

Voting records indicate that dissents in monetary policy committees are frequent and predictability regressions show that they help forecast future policy decisions. This paper develops a model of consensual collective decision-making and dissent, and estimates it using individual voting data from the Bank of England and the Riksbank. Regressions based on artificial data simulated from the model show that decision-making frictions help account for the predictive power of current dissents.     

Dissertation abstract: Essays on veto bargaining games

This dissertation experimentally analyzes the outcomes of multilateral legislative bargaining games in the presence of a veto player. The first essay examines veto power—the right of an agent to unilaterally block decisions but without the ability to unilaterally secure his/her preferred outcome. Using Winter’s (1996) theoretical framework, I consider two cases: urgent committees where the total amount of money to be distributed shrinks by 50% if proposals do not pass and non-urgent committees where the total amount of money shrinks by 5% if proposals do not pass. Committees with a veto player take longer to reach decisions (are less efficient) than without a veto player and veto players proposals generate less consensus then non-veto players proposals, outcomes on which the theory is silent. In addition, veto power in conjunction with proposer power generates excessive power for the veto player. This suggests that limiting veto players’ proposer rights (e.g., limiting their ability to chair committees) would go a long way to curbing their power, a major concern in committees in which one or more players has veto power. Finally, non-veto players show substantially more willingness to compromise than veto players, with players in the control game somewhere in between. I relate the results to the theoretical literature on the impact of veto power as well as concerns about the impact of veto power in real-life committees. The second essay discusses in detail the voting patterns in the veto and control games reported in the first essay. The empirical cumulative density functions of shares veto players accepted first degree stochastically dominates that of shares for the controls and the empirical cdfs of shares the controls accepted first degree stochastically dominate that of shares for non-veto players. Random effect probits support this conclusion as well. In addition, regressions imply favorable treatment of voting and proposing between non-veto players which, however, does not result in larger shares in the end. Coalition partners consistently demand more than the stationary subgame perfect Nash equilibrium share except for veto players in non-urgent committees. JEL Classification C7, D7, C78, D72 Dissertation Committee: John H. Kagel, Advisor Massimo Morelli Alan Wiseman Stephen Cosslett     

Preferences or private assessments on a monetary policy committee?

Using Bank of England voting data, we show empirically that members’ votes are driven by heterogeneous individual assessments of the economy as well as their individual policy preferences. Estimates indicate that internal committee members form more precise assessments than externals and are also more hawkish. The estimates allow the first quantification of the gain due to information aggregation on monetary policy committees. The marginal gain from additional committee members tapers quickly after five members. There is no evidence of gains through externals’ moderating internals’ preferences. A relatively small committee of highly informed internal members emerges as a desirable committee structure.     

Board and Monitoring Committee Independence

This study focuses on the composition of boards of directors and their monitoring committees (audit and compensation) for large Australian companies. For firms whose boards use a committee structure, much of the monitoring responsibility of the board is expected to rest with the independent committee members. We document a positive association between the proportion of independent directors on the full board and its monitoring committees, and a greater proportion of independent directors on both audit and compensation committees than the full board. Our hypotheses tests involve an examination of the impact of other mechanisms used to control agency conflicts on full board and committee independence, and the association between this independence and firm value. We find that full board independence is associated with low management ownership and an absence of substantial shareholders. Audit committee independence is associated with reduced monitoring by debtholders when leverage is low. While we predict a positive relationship between board and monitoring committee independence and firm value, our results do not support this conjecture.     

Distortionary lobbying

We study the role of partisan committee members in an information aggregation setup à la Feddersen and Pesendorfer. Based on their analysis we show that interest groups may impose a huge welfare loss on society because their activities distort political outcomes more than would be needed in order to achieve their own objectives. In an information acquisition framework à la Mukhopadhaya/Persico we argue that uninformed interest groups may instead improve the quality of some committee decisions. We thank participants of the WZB conference on “Interest groups and economic performance”, an anonymous referee, and in particular Ashish Chaturvedi, Kai Konrad, and Ami Glazer for useful comments.