3rd Workshop

(all papers are work in progress and preliminary and should not be cited without the consent of the authors.)

Volker Britz | ETH Zurich | Website

Open Rule Legislative Bargaining
(with Hans Gersbach) DownloadPaper (PDF, 517 KB)vertical_align_bottom
We consider non-cooperative bargaining on the division of a surplus under a simple majority rule. Bargaining takes place according to an "open rule" as originally suggested by Baron and Ferejohn (1989): Under an open rule, proposals can be amended before they are voted on. We first point out some gaps in Baron and Ferejohn's work, and provide a fresh analysis of open rule bargaining. We carefully distinguish between players endorsing a proposal and those voting in favor of a proposal. We devise a method to construct equilibrium candidates and to test whether these candidates are indeed equilibria. When players are sufficiently patient, we explicitly compute equilibrium outcomes. Compared to the canonical closed rule bargaining game, the equilibrium outcomes of open rule bargaining involve delays, but lead to more egalitarian surplus allocations. However, our results suggest that equilibrium delays tend to be longer, and surplus allocations tend to be less egalitarian than predicted by Baron and Ferejohn.

Pamela Campa | Stockholm School of Economics| external pageWebsitecall_made

Gender and Political Coalition
(with Manuel Bagues) DownloadPaper (PDF, 1.1 MB)vertical_align_bottom
Women are generally under-represented in top positions in the labor market, and it is largely documented that the gender gap in professional careers widens as the seniority of the position increases. In this paper we study one potential explanation for the “leaky pipeline”, namely gender differences in success at forming coalitions in male-dominated environments. We use data from municipal elections in Spain, where municipal councils choose the mayor among list-leaders by majority rule, after a general election to select the council members. We study gender-mixed close elections between 1999 and 2015 and show that female leaders that gain the plurality of votes in the general election are significantly less likely to lead a government coalition than male leaders with the same electoral support. The gender difference is specific to elections where no party wins a seat advantage, is not accounted for by differences in party affiliation or political experience, and is larger the higher the share of men involved in the bargaining. Our findings might be relevant in contexts where a group elects its head (e.g. government assemblies or corporate boards). More generally, since group support and alliances are arguably crucial to lead a hierarchical organization, our findings indicate that lower success in securing group support and alliances is a potential contributor to women’s scarcity in top positions.

Amrita Dhillon | King’s College London | external pageWebsitecall_made

Electoral Competition and Political and Corruption Download(Paper) (PDF, 1.9 MB)vertical_align_bottom
In developing countries with weak enforcement, there is implicitly a large reliance on re-election incentives to reduce corruption. In this paper we extend existing models of post-election accountability with pure moral hazard to incorporate heterogeneous voters. In contrast to this existing literature, we show that electoral discipline is a weak instrument for improving accountability in a majoritarian voting system. More specifically, our model predicts that not only does corruption increase with competition under some conditions, but that the only type of corruption that is responsive to electoral competition is one where voters lose private benefits from the corruption, while corruption in public goods is not responsive. Consistent with these hypotheses, novel panel data on village level audits of one of India’s largest rural public works program suggest a U-shaped relationship between electoral competition and corruption, and responsiveness of corruption only in the private benefits of the program to competition. Our findings highlight the importance of credible penalties and the need for policy interventions that reduce pilferage in the public component of welfare programs, which entail larger welfare losses to citizens.

Bard Harstad | University of Oslo| external pageWebsitecall_made

The Political Economics of Conservation Download(Paper) (PDF, 599 KB)vertical_align_bottom
Every government that controls an exhaustible resource must decide whether to exploit or conserve and thereby pass on the decision to the next government. This paper develops a theory of this situation and shows when a small probability that some future government will exploit leads to a domino effect with rapid exploitation. This leads to a multiplier that is especially large if the government is powerful now but unlikely to be in power later. The multiplier permits dramatic returns on lobby contributions contingent on exploitation -- or on compensations contingent on conservation -- when these offers are carefully designed.

Melis Kartal | Universität Wien | external pageWebsitecall_made

Fake News, Voter Overconfidence, and the Quality of Democratic Choice
(with Jean-Robert Tyran) DownloadPaper (PDF, 896 KB)vertical_align_bottom
We theoretically and experimentally study the effects of overconfidence and fake news on information aggregation and the quality of democratic choice in a common interest setting. We theoretically show that over-confidence exacerbates the adverse effects of misinformation. We also study large elections and extensions that allow for correlated information signals, partisan biases, and targeted misinformation intended to move public opinion in a specific direction. In our experiment, voters are exposed to correct news or misinformation (i.e., fake news). The extent to which a subject is likely to observe correct news depends on his cognitive ability. Absent overconfidence, more cognitively able subjects are predicted to vote while less able subjects are predicted to abstain, and information is predicted to aggregate well. We provide evidence to show that overconfidence induces misinformed subjects to vote excessively, thus undermining information aggregation.

Aniol Llorente Saguer | Queen Mary University of London | external pageWebsitecall_made

Partial Abstention in Shareholder Meetings
Shareholder meetings are a key feature of corporate governance. At these meetings, share-holders hold directors accountable through votes on various issues (e.g., on managements proposals and on the composition of the board of directors). A distinguishing feature of shareholder meetings is that shareholders typically hold different number of shares, and hence votes. For instance, blockholders (shareholders who own more than 5% of the out-standing shares) hold a large number of shares of a given firm. Similarly, as Edmans and Holderness (2017) discuss, many institutional investors hold less than 5% of the out-standing shares of a given firm but still hold a very substantial number of shares. By contrast, retail shareholders typically hold much fewer shares of a given firm. Brav, Cain, and Zytnick (2019) find that the average number of shares per account in their dataset is equal to 705, with an average of 4 firms per account. The heterogeneity in shareholdings is not limited to differences across types of shareholders. Brav et al. (2019) also find that the dispersion of shareholdings among retail shareholders is substantial.
 

Ben Lockwood | Wharton School at the University of Pennsylvania | external pageWebsitecall_made

The Effects of Social Capital on Government Performance and Turnover: Theory and Evidence from Italian Municipalities
(with with Emanuele Bracco, Francesco Porcelli, Michela Redoano and Daniel Sgroi) DownloadPaper (PDF, 1.7 MB)vertical_align_bottom
This paper makes three contributions. First, it presents a theoretical analysis of how both the civic preference and information aspects of social capital impact on government performance and turnover, employing a political agency model with both moral hazard and adverse selection. Second, it presents novel measures of both local government performance and on social capital at the Italian municipality level, using administrative data and an online survey respectively. Third, empirical results show that higher social capital improves government performance, especially in the first term of office, but also increases turnover of incumbent mayors, as predicted by the theory. The voting rule predicted by the theory has the feature that the level effect of social capital on the incumbent vote share is negative, but the interaction between social capital and performance is positive. Our empirical results also support this prediction.

César Martinelli | George Mason University | external pageWebsitecall_made

Accountability and Mega Corruption Download(Paper) (PDF, 709 KB)vertical_align_bottom
We propose a model of political careers and electoral accountability, in an environment in which politicians may take bribes at different stages of their careers, and in which politicians actions are only imperfectly observed by voters. Our model throws light on relatively unexplored dynamic effects of corruption on politician selection. In particular, we show that the expectation of promotion to higher office may motivate some politicians to behave worse at the latest stages of their careers, thus setting off a trade-off between providing incentives for good behavior at lower office and selecting better politicians for higher office. We also show that the optimal design of rewards for higher office has a simple bang-bang structure—optimal rewards focus either on stamping corruption at lower office, or on improving selection at the higher office. If rewards are set optimally, a more intense competition for higher office benefits voters, but better quality of information about bribe-taking does not unambiguously benefit voters.

Frank Rosar | Universität Bonn | external pageWebsitecall_made

Brexit: Dynamic Voting with an Irreversible Option
(with Benny Moldovanu) DownloadPaper (PDF, 716 KB)vertical_align_bottom
We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly between a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We compare strengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a too small supermajority can perform very poorly under circumstances where it is socially optimal to never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problem without relying on fine-tuning, but can lead to inefficient delays. If a final decision for either alternative requires winning by a certain margin, and if a new vote is triggered otherwise, both problems, choosing LEAVE too easily and inefficient delays, can often be avoided.

Oriol Tejada | ETH Zurich | external pageWebsitecall_made

Rational Learning in Voting for the Common Good: Optimal Committee Size and Rewards
(with Hans Gersbach and Akaki Mamageishvili) DownloadPaper (PDF, 516 KB)vertical_align_bottom
A population of identical individuals must choose one of two alternatives under uncertainty about what the right alternative is. Individuals can gather information of increasing accuracy at an increasing, convex utility cost. We analyze how vote delegation to a committee and suitable rewards for its members can ensure that high or even optimal levels of information are (jointly) acquired. If information acquisition costs are public and can be shared among all individuals of the population, a committee made up of a few, or even one member implements the right alternative with the highest probability, provided that the information acquisition cost function is moderately convex. If information acquisition costs are private, rewarding committee members depending on the vote tally difference can induce committee members to acquire (close to) optimal levels of information. In such cases, committee size must typically also be small—at least in relative terms—, albeit never lower than three members.

The 3rd ETH Workshop on Democracy: Theoretical Political Economy, in collaboration with CEPR, will take place on the 4th and 5th of June, 2020 (via external pageZoomcall_made).

The workshop is organized by the Chair of Macroeconomics: Innovation and Policy and aims to:

• present leading theoretical approaches to modeling Politics,
  
• present cutting-edge theoretical analyses of Political Economy problems,
  
• explore new forms of democracy.

We expect the workshop to provide a stimulating discussion of ongoing research among a limited number of invited participants. Each presentation will be about 45 minutes, followed by a 15-minute discussion.