risk aversion and bandwagon effect in the pivotal voter model the empirical literature on the effects of opinion polls on election outcomes has recently found substantial evidence of a bandwagon effect defined as the phenomenon according to which the publication of opinion polls is advantageous to the candidate with the greatest support this result is driven in the lab experiments by a higher turnout rate among the majority than among the minority such evidence is however in stark contrast with the main theoretical model of electoral participation in public choice the pivotal voter model which predicts that the supporters of an underdog candidate participate at a higher rate given the higher probability of casting a pivotal vote this paper tries to reconcile this discrepancy by showing that a bandwagon effect can be generated within the pivotal voter model by concavity in the voters utility function which makes electoral participation more costly for the expected loser supporters given the strict relationship between concavity and risk aversion the paper also establishes the role of risk aversion as a determinant of bandwagon

mathematical structure of a bilevel strategic pricing model abstract this paper is concerned with the characterization of optimal strategies for a service firm acting in an oligopolistic environment the decision problem is formulated as a leader follower game played on a transportation network where the leader firm selects a revenue maximizing price schedule that takes explicitly into account the rational behavior of the customers in the context of our analysis the follower s problem is associated with a competitive network market involving non atomic customer groups the resulting bilevel model can therefore be viewed as a model of product differentiation subject to structural network constraints

spatial competition and the theory of differentiated markets an introduction spatial economics has been both in the very center of microeconomic theory and at its periphery it has been at the center to the extent that it has followed a tradition taking its roots in hotelling s classic stability in competition paper 15 and has used spatial concepts to explain by analogy the pricing of differentiated commodities it has been at the periphery to the extent that it has considered spatial pricing as observed in real life situations and tried to rationalize and evaluate observed spatial pricing techniques the former approach focuses on f o b pricing which is apparently taken for granted the latter focuses on discriminatory pricing which appears as the most frequently used technique in the industrial world the purposes of this special issue are to bring those two approaches together and to explore some of their analytical possibilities and limitations the philosophy of this introductory paper is to show the need for an integration of both avenues in an analysis of differentiated markets we begin by discussing the assumptions of what we will call the hotellinglosch approach and their implications in terms of the problems they allow us to tackle several papers in this issue contribute new insights in this respect we then undertake a similar exercise for what may be called the greenhutohta approach focusing on spatial price discrimination to discover the possibilities it may provide for an analysis of quality choice at the outset we note that its spatial approach typically implies partition of the

a theory of voting equilibria a voting equilibrium arises when the voters in an electorate acting in accordance with both their preferences for the candidates and their perceptions of the relative chances of various pairs of candidates being in contention for victory generate an election result that justifies their perceptions voting equilibria always exist and the set of equilibria can vary substantially with the choice of voting system we compare equilibria under the plurality rule approval voting and the borda system we consider a candidate positioning game and find that the plurality rule imposes little restriction on the position of the winning candidate in three candidate races while approval voting leads to a winner positioned at the median of the voter distribution we contrast campaign activities intended to influence voter preferences with activities meant to influence only perceptions of candidate viability

agendas strategic voting and signaling with incomplete information the literature on agendas with sincere and strategic voting represents an important contribution to our understanding of committees of institutions and of the opportunities to manipulate outcomes by the manipulation of institutions that literature though imposes an assumption that may be unrealistic in many situations namely that everyone knows the preferences of everyone else in this essay we apply bayesian equilibrium analysis to show that the properties of agendas that others derive by assuming complete information do not hold necessarily under incomplete information first a condorcet winner need not be selected even if nearly everyone on the committee most prefers it second the two step theorem that any outcome reachable in n voting stages via some amendment agenda is reachable in two stages under sophisticated voting need not hold third nonbinding votes such as straw polls can critically affect final outcomes

a bilevel model of taxation and its application to optimal highway pricing we consider a bilevel model where the leader wants to maximize revenues from a taxation scheme while the follower rationally reacts to those tax levels we focus our attention on the special case of a toll setting problem defined on a multicommodity transportation network we show that the general problem is np complete while particular instances are polynomially solvable numerical examples are given

coordination and policy moderation at midterm coordination and policy moderation at midterm eligible voters have been coordinating their turnout and vote decisions for the house of representatives in midterm elections coordination is a noncooperative rational expectations equilibrium stochastic choice models estimated using individual level data from nes surveys of years 1978 1998 support the coordinating model and reject a nonstrategic model the coordinating model shows that many voters have incentives to change their votes between presidential year and midterm after learning the outcome of the presidential election but this mechanism alone does not explain the size of midterm cycles the largest source of loss of support for the president s party at midterm is a regular pattern in which the median differences between voters ideal points and the parties policy positions have become less favorable for the president s party than they were at the time of the presidential election nonvoters show the same pattern the interelection changes are not consistent with the theory of surge and decline do americans coordinate their electoral choices in midterm congressional elections we use coordination to describe a situation in which two conditions hold for everyone who is eligible to vote i e every elector each elector combines information that each elector has privately with information that everyone has in common to make the best possible prediction of the election outcome and each elector makes the choice consistent with the elector s prediction that is most likely to produce the best possible result for the elector each elector s prediction takes into account what all electors best strategies would be given the information they have in common a condition described by saying that each elector has rational expectations the choice each elector makes is part of the elector s private information when every elector makes choices according to a strategy that is consistent with the elector s rational expectations and no elector can produce a personally better outcome by using a different strategy then there is a noncooperative equilibrium coordination is defined as the existence of a noncooperative equilibrium that is based on everyone having rational expectations beyond implications for the regularity with which the president s party loses vote share in midterm elections which we discuss below the existence of coordination is important because coordination implies that electors take one another into account in a constitutionally significant way in american elections coordination is based on the separation of powers between the president and congress coordination occurs when electors anticipate how election outcomes will affect bargaining about policy within the legislature and between the legislature and the executive by instituting the constitutional separation of powers madison believed that elected officials pursuit of their selfish interests and ambitions would lead them to act with regard to one another in ways that would prevent governmental tyranny carey 1978 159 160 even electors who did not coordinate might hope with madison that the separation of powers would affect officials in that way but if coordination exists electors shift from being mere observers of consequences the constitutional provisions may produce to being agents who are led to counteract one another by the constitutional incentives coordinating electors are as wary of one another as they are of officials

competing for endorsements endorsements are a simple language for communication between interest group leaders and group members the members who share policy concerns may not perfectly understand where their interests lie on certain issues if their leaders cannot fully explain the issues they can convey some information by endorsing a candidate or party when interest groups endorse legislative contenders the candidates may compete for backing policies may favor special interests at the expense of the general public the authors examine the conditions under which parties compete for endorsements the extent to which policy outcomes are skewed and the normative properties of the political equilibria

coordination moderation and institutional balancing in american presidential and house elections outcome in the theoretical equilibrium the proportion of voters who split their ticket in order to balance the house with the president has been small but large enough to affect election outcomes moderation has usually been based on voters expectations that the president will be at least an equal of the house in determining postelection policy d o americans coordinate their votes for president and for congress suppose a voter knows that policy outcomes are compromises between the positions taken by the president and congress and believes the two political parties push for distinct policy alternatives then the voter believes that different combinations of party control of the presidency and congress will produce different policy outcomes if the voter cares about the policy outcomes then the voter s choices among candidates should depend on the combination of party control the choices will help bring

partisan politics and election failure with ignorant voters abstract we analyze candidate competition when some voters do not observe a candidate s policy choice voters have a personality preference when both candidates offer the same policy in equilibrium the candidate with a personality advantage may get elected with a partisan policy even though his opponent s policy is preferred by all voters the departure from the downsian prediction is most pronounced when candidates have a weak policy preference and care mostly about winning the election in that case uninformed voters choose the candidate with the preferred personality even if electing this candidate implies a lower payoff on average

estimation of sons intergenerational earnings mobility in the presence of censoring based on intergenerational data from the panel study of income dynamics i provide estimates of income mobility across generations for men special attention is paid to issues of censoring caused by a son s unemployment employing non parametric bounds estimates i illustrate that previous income mobility estimates rely heavily on unjustified assumptions of exogenous selection assuming a son s potential income is instead a function of his reason for unemployment and work history i re estimate mobility allowing for sampling variability the range of feasible slopes consistent with these modified bounds restrictions is 0 27 to 0 55 copyright 2002 john wiley sons ltd

strategic competition in sequential election contests this paper studies a sequential election contest such as theamerican presidential primary in which several electionsoccur one at a time until a single winner emerges theconventional wisdom is such a system benefits a candidatefavored in the initial elections because of momentum thispaper uncovers a potentially opposing force if participationis costly and candidates exit when they have unfavorablefuture prospects a candidate with friendly elections at theend of the contest will typically benefit from the resultinggame theoretic competition tension between this strategic effect and momentum helpsexplain several empirical regularities of presidentialprimaries

on the nature of competition with differentiated products there is an old debate going back to bertrand 1883 and edgeworth 1925 about the fragility of market equilibrium when competition arises among a few sellers it was hotelling s belief that price instability vanishes when products are differentiated hotelling 1929 recently attention was drawn to the fact that even if product differentiation can weaken the forces leading to price instability it cannot eliminate completely the possibility of price cycles d aspremont et al 1979 the purpose of this paper is to show that vertical and horizontal product differentiation do not operate in the same manner a stable market outcome including an endogenous product specification arises more frequently with the former than with the latter horizontal product differentiation is rooted in taste differences more precisely the potential customers have heterogeneous preferences about the proportion in which the attributes of the product should be combined a wide range of substitute products can then survive in the same market simply because each of them combines the various attributes of the product in a proportion suitable to a particular segment of customers between two products in the range the level of some attributes is augmented while that of others is lowered each variety has its own circle of customers exactly as the inhabitants located around a particular shop form its potential market none the less competitors can raid these privileged market shares by adequate price cuts by contrast vertical product differentiation refers to a class of products which cohabit simultaneously on a given market even though customers agree on a unanimous ranking between them between two products in the range the level of all attributes is augmented or lowered the survival of a low quality product then rests on the seller s ability to sell it at a reduced price compensating thereby for the higher a priori attractiveness of a more desirable quality the seller of a low quality product will specialise in the segment of customers whose propensity to spend on the corresponding range of products is low either because they have relatively lower income or relatively less intensive preferences than other customers at the same time the seller of a high quality product will enjoy an absolute advantage over his competitor 2 interestingly it turns out that price and product competition does not lead to the same results in these two situations regarding the stability of the market equilibrium to stress the differences we have chosen to concentrate on two

the rationally uninformed electorate some experimental evidence this essay reports on a series of twenty four election experiments in which voters are allowed to decide between voting retrospectively and purchasing contemporaneous information about the candidate challenging the incumbent each experiment consists of a series of election periods in which dummy candidates choose spatial positions which represent either their policy while in office or a promise about policy if elected subjects voters are told the value to them of the incumbent s policy but they must decide prior to voting whether or not to purchase information about the value of the challenger s promise in general our data conform to reasonable expectations voters purchase less information and rely more on retrospective knowledge when the candidates strategies are stable and their likelihood of purchasing information during periods of instability is tempered by the likelihood that their votes matter by the reliability of the information available for purchase and by the degree of instability as measured by changes in each voter s welfare

sequential importance sampling and resampling for dynamic portfolio credit risk we provide a sequential monte carlo method for estimating rare event probabilities in dynamic intensity based point process models of portfolio credit risk the method is based on a change of measure and involves a resampling mechanism we propose resampling weights that lead under technical conditions to a logarithmically efficient simulation estimator of the probability of large portfolio losses a numerical analysis illustrates the features of the method and contrasts it with other rare event schemes recently developed for portfolio credit risk including an interacting particle scheme and an importance sampling scheme

intergenerational mobility and sample selection in short panels using data from the first 11 waves of the bhps this paper measures the extent of the selection bias induced by standard coresidence conditions bias that is expected to be severe in short panels on measures of intergenerational mobility in occupational prestige we try to limit the impact of other selection biases such as those induced by labour market restrictions that are typically imposed in intergenerational mobility studies by using different measures of socio economic status that account for missing labour market information we stress four main results first there is evidence of an underestimation of the true intergenerational elasticity the extent of which ranges between 12 and 39 second the proposed methods used to correct for the selection bias seem to be unable to attenuate it except for the propensity score weighting procedure which performs well in most circumstances this result is confirmed both under the assumption of missing at random data as well as under the assumption of not missing at random data third the two previous sets of results direction and extent of the bias and differential abilities to correct for it are also robust when we account for measurement error fourth restricting the sample to a period shorter than the 11 waves under analysis leads to a severe sample selection bias in the cases when the analysis is limited to eight waves this bias ranges from about 40 to 65 copyright 2006 john wiley sons ltd

a partisan model of government expenditure partisan models of budget politics largely concentrate on the size of government budget deficits and debt but most theories have little to say as to what the effect of party politics on both the size and the composition of budgets is this paper seeks to extend previous literature in two directions first a model of spending preferences is developed that relates actors preferred level and allocation of expenditure to electoral gains from fiscal policies second changes in both total expenditure and the expenditure mix of two budget categories are analyzed for the effect of parties spending preferences as stated in their election manifestos using data on 19 oecd countries from 1971 to 1999 the paper finds support for general partisan hypothesis the results suggest that the actual spending preferences of parties matter whereas they do not indicate that parties of the left consistently differ from parties of the right in their spending behavior

rational expectations in elections some experimental results based on a multidimensional model while our experimental results do not show convincingly the superiority of our model over alternative hypotheses these results do not reject the rational expectations approach to handling incomplete information in elections this is not to say of course that our model provides the most appropriate treatment of incomplete information since it relies primarily on one source of information polls certainly other data exist such as the historical record of the parties primary election outcomes and the coalitions observed at nominating conventions which voters might use for information on their choices what we hope our analysis has begun however is a more rigorous study of how citizens can interpret such data and the role played by the various media in supplying these data

incomplete information and ideological explanations of platform divergence one of the paradoxes of formal spatial voting models is the robustness of the theoretical result that candidates will converge toward centrists positions and the empirical observation of persistent policy divergence of candidates a solution is that candidates are ideological have policy preferences when candidates have policy preferences and incomplete information about voter preferences then platform divergence is theoretically predicted experimental tests of the ideological model are presented it is shown that platform divergence is significant when candidates are ideological and have incomplete information about voter preferences however candidate positions are more convergent on average than the theory predicts suggesting that subjects value winning independently of the expected payment

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

what price accountability the lucas island model and the politics of monetary policy this paper develops a model of an electoral cycle in inflation and output based on rational inflation expectations and rational retrospective voting voters are heterogeneous and partially informed about aggregate macroeconomic variables they observe precisely how monetary policy stimulates their local economies but their observations of economic activity in other sectors are imprecise voters extract information about the incumbent policymaker s economic competence from cross sectoral spillover effects the incumbent has incentives to generate preelection monetary surprises that stimulate the local economies and generate cross sectoral spillover effects he thereby creates an impression of economic competence and furthers his reelection prospects his policy manipulations are the price of political accountability on a positive note the incumbent is more likely to survive voter scrutiny if he is more competent than the average political candidate

majority rule outcomes and the structure of debate in one issue at a time decision making in many group decision making situations such as faculty hiring decisions outcomes are often arrived at by deciding one issue at a time e g first rank then subfield it is well known that procedures limiting votes to separate orthogonal dimensions always result in a unique outcome at the generalized median the median of each separate issue dimension often however there is conflict within groups over what ought to be the relevant orthogonal dimensions within which choices will be made we show that the way in which debate is structured i e the way in which the dimensions of choice are specified can have important consequences for what outcome gets chosen however we also show that the range of outcomes that could arise from alternative structurings of the decision process is bounded these bounds are expressed relative to the yolk a sphere located centrally in the pareto set whose existence was first noted by tullock 1967 262 and whose properties have recently been developed by mckelvey 1986 and feld et al 1987 we find that in m orthogonal dimensions the feasible outcomes must lie within mathtype mtef 2 1 feaafiart1ev1aaatcvaufebsjuyzl2yd9gzlbvynv2caerbulwbln hiov2dgi1btfmbaexatlxbi9gbaerbd9wdylwzybitldharqqtubsr 4rnchbgeagqivu0je9sqqrpepc0xbbl8f4rqqrffpeea0xe9lq jc9 vqaqpepm0xbba9pwe9q8fs0 yqaqpepae9pg0firpepekkfr0xfr x fr xb9adbaqaaegacigaaiaabeqaamaabaabaagcbawaaoaaaeaaca qgtbaaleqaaaaa 36f8 sqrt text m radii of the center of the yolk

economic integration and mass politics market liberalization and public attitudes in the european union theory theories of how domestic politics influence international economic policy differ fundamentally in their treatment of the mass public a central issue in this controversy is whether members of the mass public form attitudes about international economics that reflect their economic interests this article examines this assumption using international economic theory to identify variation in economic interests regarding international economic policy hypotheses citizens of the european union eu form attitudes toward eu membership an international economic policy that are consistent with their occupation based economic interests methods individual level heteroskedastic ordered probit analysis of eurobarometer survey data and oecd economic statistics from 1975 to 1992 results while controlling for a variety of potentially confounding factors the likelihood of positive evaluations of eu membership is positively related to intraoccupational differences in economic benefits from eu membership

structure induced equilibria and perfect foresight expectations this paper extends the work on structure induced equilibria by explicitly considering voters expectations the standard assumption of myopic expectations is contrasted with the alternative assumption of perfect foresight expectations in the institutional setting examined perfect foresight means voters know how the outcome on the first issue in a sequence of two issues conditions majority rule outcomes on the second issue if voters act on this knowledge when voting on the first issue then several important results follow first voters may possess multipeaked preferences defined over the first issue with a majority cycle resulting so that there is no equilibrium to the whole sequence of elections second even if cycling does not result the exact location of the equilibrium involves a broader conspiracy than previously thought a conspiracy of not only preferences and institutional structure but also voters expectations as conditioned by that structure

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

imperfectly informed voters and strategic extremism we analyze a two candidate downsian model considering that voters use shortcuts e g interest group media endorsements to infer candidates policy platforms that is voters do not observe candidates exact platforms but only which candidate offers the more leftist rightist platform relative positions in equilibrium candidates behavior tends to maximum extremism but it may converge or diverge depending on how voters behave when indifferent policywise between the candidates when the tie breaking rule used by the voters is sufficiently fair candidates converge to the extreme preferred by the median voter but when it strongly favors a certain candidate each candidate specializes in a different extreme

majority rule and election models abstract this paper surveys the theoretical work that has been done on majority rule and economic models of elections section i provides an overview of the topic section 2 reviews the most important results that have been obtained about majority rule as an abstract collective choice rule section 3 identifies some alternative inferences that can be made from those results section 4 covers some models that include additional features that are present in political institutions where majority rule is used section 5 concentrates on some alternative election models and equilibrium concepts section 6 focuses on election models with abstentions and or candidate uncertainty about voter behaviour section 7 compares and contrasts models where candidates are certain about what the voters choices will be contingent upon about the choices made by the candidates and models where they are uncertain about those choices section 8 closes the survey by identifying some emerging areas of research

sequential voting with endogenous voter forecasts we investigate a sequential voting model in which voters forecasts of outcomes on future issues are determined endogenously voters are assumed to make decisions in an environment in which future outcomes are uncertain the uncertainty arises from two possible sources voters may be uncertain of other voters preferences in addition events that occur before future issues are decided may affect voters preferences on future votes information available to voters at each point in time is characterized an equilibrium to the voting problem if one exists is one for which the outcome on the issue currently being decided and voters forecasts of outcomes on future issues are determined simultaneously we show that an equilibrium exists under a particular voting institution and characterize voters forecasts for this equilibrium

elections with limited information a fulfilled expectations model using contemporaneous poll and endorsement data as information sources a one dimensional model of two candidate elections under asymmetric information is theoretically developed and experimentally tested candidates do not know voter utility functions and most voters are uninformed about candidate policy positions a fulfilled expectations equilibrium is defined using poll and endorsement data as information sources it is proved that with any positive fraction of informed voters any equilibrium extracts all available information all participants voters and candidates alike act as if they were fully informed for fixed candidate strategies a dynamic is given for convergence to voter equilibrium and this process is shown to imply a bandwagon effect

the swing voters blessing abstract two candidates commit to policy platforms before an election takes place all voters care about the quality of the candidates as well as the policies they offer however the quality differences are only observable to a limited number of informed voters i show that if all uninformed voters are fully rational they follow a strategy of making their voting decisions dependent only on the position of their own policy bliss point relative to the median bliss point as in the standard case with only informed voters the candidate who is preferred by the median voter wins in equilibrium this is the higher quality candidate and the policy implemented is the same as if all voters had been fully informed i show that the existence of boundedly rational uninformed swing voters increases the welfare of the majority of voters these swing voters do not consider the fact that their vote influences their utility only when their vote is pivotal consequently they always support the candidate whose policy platform they prefer in this scenario the winning high quality candidate s policy is closer to the median voter s bliss point this swing voters blessing increases the welfare of the majority of voters

an information rationale for the power of special interests political decisions are often biased in favor of special interests at the expense of the general public and they are frequently inefficient in the sense that the losses incurred by the majority exceed the gains enjoyed by the minority this article explains the bias in terms of information asymmetries and the free rider problem first incumbents increase their reelection prospects by biasing policy toward groups that are better able to monitor their activities second because smaller groups are better able to overcome the free rider problem of costly monitoring policy will be biased in their favor third the effect of asymmetric monitoring on voter welfare is ambiguous the inefficiencies created by the policy bias are offset by a positively valued selection bias incumbents of above average quality are more likely to survive voter scrutiny than are low quality types

public protests and policy making technological advances and the development of social media have made petitions public protests and other form of spontaneous activism increasingly common tools for individuals to influence decision makers to study these phenomena in this article i present a theory of petitions and public protests that explores their limits as mechanisms to aggregate information the key assumption is that valuable information is dispersed among citizens through petitions and protests citizens can signal their private information to the policy maker who can then choose to use it or not i first show that if citizens individual signals are not sufficiently precise information aggregation is impossible no matter how large is the population of informed citizens even if the conflict with the policy maker is small i then characterize the conditions on conflict and the signal structure that guarantee information aggregation when these conditions are satisfied i show that full information aggregation is possible as the population grows to infinity when they are not satisfied i show that information aggregation may still be possible if social media are available

an institutional theory of divided government and party polarization this paper develops a simple model of institutionally driven party competition which may explain the persistence of divided government in the basic model two parties that are solely motivated to win elections compete for two offices the legislature and the executive parties offer positions in a single dimension to a single district sophisticated electorate that understands the institutionally defined relationship between electoral and policy outcomes when parties are risk averse competition for the two offices leads to a prisoner s dilemma the parties can jointly improve on the one shot nash equilibrium in which they adopt convergent positions several extensive form election games are shown to allow the parties to solve their prisoner s dilemma in a subgame perfect nash equilibrium in such an equilibrium parties adopt widely separated positions and divided government and splitticket voting occur with high probability unlike typical voting models in the basic model there is no tendency for electoral equilibrium to produce the expected median voter s ideal policy outcome these results are robust to a variety of extensions including significant sincere voting multiple policy dimensions and defections by incumbent candidates

computing optimal recovery policies for financial markets the current financial crisis motivates the study of correlated defaults in financial systems in this paper we focus on such a model which is based on markov random fields this is a probabilistic model in which uncertainty in default probabilities incorporates experts opinions on the default risk based on various credit ratings we consider a bilevel optimization model for finding an optimal recovery policy which companies should be supported given a fixed budget this is closely linked to the problem of finding a maximum likelihood estimator of the defaulting set of agents and we show how to compute this solution efficiently using combinatorial methods we also prove properties of such optimal solutions and give a practical procedure for estimation of model parameters computational examples are presented and experiments indicate that our methods can find optimal recovery policies for up to about 100 companies the overall approach is evaluated on a real world problem concerning the major banks in scandinavia and public loans to our knowledge this is a first attempt to apply combinatorial optimization techniques to this important and expanding area of default risk analysis

executive veto and spending limitation positive political economy with implications for institutional choice the consequences of institutional change in the budgetary process are not generally determinate independent of the preferences of political actors nonetheless this study shows for a general class of preference configurations that the legislative branch cannot be made better off by a spending limitation unless the executive is empowered with a line item veto in the absence of executive item veto authority there is no incentive for the legislature to constrain spending

polarized platforms and moderate policies with checks and balances abstract in standard spatial models of elections parties with policy preferences take divergent positions their platform positions are less separated than are the parties ideal policies if policy is the result of an executive legislative compromise the policy preferences of the parties can be moderated by voter behavior divided government may result since parties anticipate the moderated outcomes they have an added incentive to choose separated platforms consequently divergence in platforms is greater than in the standard model especially when uncertainty is high and the legislature more powerful than the executive for some parameters parties may even posture by adopting platforms that are more extreme than their true ideal points

do polls create momentum in political competition abstract we explore how public opinion polls affect candidates campaign spending in political competition generally polls lead to more asymmetric behavior under a majority rule there always exists an equilibrium in which the initially more popular candidate invests more in the campaign and thereby increases her lead in expectation polls create momentum when campaigning is very effective and the race is very close a second type of equilibrium may exist the trailing candidate outspends and overtakes his opponent regardless of the type of equilibrium polls have a tendency to decrease expected total campaigning expenditures by amplifying ex ante asymmetries between candidates and thus defusing competition when candidates care also for their vote share in addition to having the majority candidates incentives crucially depend on the distribution of voters candidate preferences

symposium on spatial competition and the theory of differentiated markets inclusion of assumptions of the hotelling losch approach spatial price discrimination in the greenhut ohta approach analysis of quality choice spatial approach that typically implies partition of the buyers in sales areas which do not overlap from ebsco

intergenerational mobility in britain in this paper we use longitudinal data on children and their parents to assess the extent of intergenerational mobility in britain based on data from the national child development survey a cohort of all individuals born in a week of march 1958 we find that the extent of intergenerational mobility is limited we report an intergenerational correlation of the order 40 to 60 for fathers and sons and 45 to 70 for fathers and daughters in terms of labour market earnings and years of schooling an examination of quartile transition matrices between parental and child earnings outcomes reveals a similar pattern finally it seems on the basis of these transition matrices that there is an important asymmetry in intergenerational earnings mobility with upward mobility from the bottom of the earnings distribution being more likely than downward mobility from the top

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

fiscal illusion and the grantor government empirical studies indicate that unconditional intergovernmental grants have a flypaper effect several authors have modeled recipient government spending under fiscal illusion to explain this phenomenon in short grants reduce the perceived marginal cost of recipient government output this paper develops a more general model of illusion that incorporates the grantor government thereby eliminating inconsistencies encountered in previous models the more general model implies that grant finance increases the perceived marginal cost of grantor government output thus grant induced illusion should have two effects an increase in recipient output and a decrease in grantor output the empirical work supports this hypothesis

a correction in elementary public choice geometry this paper corrects a long standing errorin elementary geometrical constructionsthat involve collective choices inmultidimensional settings the seeminglyinnocuous assumption of separability amongarguments in individual utility functionsdoes not imply symmetric indifferencecontours in shared goods space sharedgoods necessarily become gross substituteswhen resource or budgetary constraints areintroduced the corrected constructionsuggests that issue by issue voting is lessefficacious than is indicated in theconventional analysis

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

executive veto legislative override and structure induced equilibrium in this study the structure induced equilibrium approach for modeling democratic institutions is extended to allow for the added structural features of executive veto and legislative override a multidimensional model is presented for a budgetary process involving three actors a legislature an appropriations committee and an executive in order to focus attention on the role of the veto and override possibilities simplifying assumptions are made with regard to other aspects of the agenda formation process in particular the committee has monopoly agenda power a closed amendment control rule is operative and perfect foresight expectations are held by the committee and the executive given these assumptions utility maximization by the several actors generates a budget outcome characterized as a structure induced equilibrium the general model is illustrated geometrically with a two dimensional example permitting budget outcomes to be analyzed for various combinations of veto rules and override provisions the analysis demonstrates that budget outcomes are sensitive to alternative specifications of veto rules and override provisions in the illustration executive veto power is shown to vary directly with both the permissiveness of the veto rule and the stringency of the override provision similar relationships however are not found to exist for total budget expenditures

are campaign contributions a form of speech evidence from recent us house elections this paper investigates the effects of the sources ofcandidates campaign funding on their electoral outcomes withparticular emphasis on whether candidates who rely on a narrowbase of funding suffer adverse electoral consequences anextensive dataset consisting of over 650 000 contributions tohouse candidates in elections from 1980 to 1992 is used theresults reveal a negative relationship between theconcentration of contributions and voteshare for open seatcandidates and challengers this finding appears to havesignificant implications for some of the empirical premisesunderlying the u s supreme court s landmark buckley v valeo decision at the very least it represents an importantstylized fact about us elections that is robust over 1980 1992 period

on the size of u s government political economy in the neoclassical growth model we study a dynamic version of meltzer and richard s median voter model of the size of government taxes are proportional to total income and they are redistributed as equal lump sum transfers voting takes place periodically over time and each consumer votes for the tax rate that maximizes his equilibrium utility we calibrate the model to u s data key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices the total size of transfers predicted by our political economy model is quite close to the size of transfers in the data

voting as communicating this paper develops a model where voters trade off two different motives when deciding how to vote they care about current decision making they are strategic but they also care about communicating their views about their most preferred candidate so as to influence future elections by influencing other voters opinion and or party positioning in effect voters in this model are intermediate between strategic and sincere voters of conventional models in elections with more than 2 candidates this allows us to better investigate the relative efficiency of various electoral systems our main conclusion is that since voting is used as a communication device electoral systems should be designed to facilitate efficient communication e g by opting for 2 round systems rather than 1 round systems

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

the panel study of income dynamics after fourteen years an evaluation this article considers the representativeness of the panel study of income dynamics psid over its 14 year history from 1968 to 1981 given the dynamics of entry and exit from the panel by 1981 40 of the original members had left the sample and were replaced by new entrants who joined either existing households or new households being formed by members of the original sample we consider the distribution of demographic characteristics and earnings equations over time and we compare the psid with the current population survey cps by either approach we find little evidence that the psid has become unrepresentative

campaign advertising and political ambiguity this paper develops a model to explain candidates strategic decisions to provide or withhold information about policy positions in the course of an election campaign the analysis treats this problem as a game of imperfect information attention is focused on modeling voter suspicion of candidates whose positions are ambiguous specific numerical examples illustrate that candidate decisions about providing information via informative advertising depend upon candidate policy preferences campaign fund endowments partisan reputations and incumbency status the model also provides theoretical underpinnings for empirical findings regarding the effects of campaign advertising

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

stability and coordination in duverger s law a formal model of preelection polls and strategic voting this paper investigates the dynamics of the wasted vote phenomenon and duverger s law i construct a theoretical model in order to consider how preelection polls serve to inform the electorate about the relative chances of the candidates and how that information acts over time to decrease the support of the trailing candidate the results shed light on how public opinion polls can aggregate information in the electorate and coordinate voters on the viable candidates in the election specifically i show that in a bayesian game model of strategic voting there exist non duvergerian equilibria in which all three candidates receive votes in the limit these equilibria require extreme coordination however and any variation in beliefs leads voters away from them to one of the duvergerian equilibria thus non duvergerian equilibria are unstable while two party equilibria are not in addition i describe how preelection polls provide information to voters about the viability of candidates and can thus be used by voters to coordinate on a duvergerian outcome

intergenerational mobility and marital sorting we use data from the german socio economic panel and the british household panel survey to estimate the extent of intergenerational economic mobility in a framework that highlights the role played by assortative mating we find that assortative mating plays an important role on average about 40 50 of the covariance between parents and own permanent family income can be attributed to the person to whom one is married this effect is driven by strong spouse correlations in human capital which are larger in germany than britain 2006 the authors journal compilation royal economic society 2006

an introduction to the theory of rational expectations under asymmetric information every good economics textbook contains the cliche that market prices provide signals which facilitate the allocation of resources to their best use in a world not subject to random shocks consumers and producers when faced with competitive prices need look no further than their own preferences or production technology to be able to make a decision they need give no thought to the tastes endowments or technology of other agents however in a world subject to random shocks this is no longer the case agents are faced with the problem of forecasting future states of nature and more importantly of forecasting the impact of these states on the actions of other agents rational expectations theories provide a model of how agents make those forecasts in a world subject to random shocks it will be the case that agents acquire or at least attempt to acquire information about the future realization of the shocks it will in general be the case that different agents have access to different information the fact that information is dispersed throughout the economy has the potential to cause a misallocation of resources relative to what would be the case if all agents knew everything an efficient allocation of resources will in general require the transfer of information from consumers who have some information about their future demands to producers who can take current actions to mitigate avoidable scarcities or surpluses though many classical and neo classical writers emphasize the informational role of prices the standard marshallian or walrasian model of competitive equilibrium does not involve prices transferring information across traders the purpose of this paper is to show that rational expectations models are radically different from walrasian models in an economy where traders have diverse information this is demonstrated by showing that unlike what occurs in a walrasian equilibrium of an economy with heterogeneous information if there is a complete set of insurance markets and utility is additively separable over time then there exists a rational expectations equilibrium which gives consumers the same allocation as if each consumer has access to all of the economy s information this implies that under the above assumptions a central planner with all the economy s information could not pareto dominate the competitive allocation achieved when traders have diverse information and rational expectations this paper makes no attempt to survey the literature on rational expectations the reader is referred to shiller 1978 barro 1981 for a survey of macroeconomics and rational expectations and radner 1980 for a survey of the microeconomics and mathematical theory of rational expectations this paper will however try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the walrasian model of equilibrium the rest of this section is devoted to a discussion of pre rational expectations ideas

retrospective voting an experimental study this essay reports on some experiments designed to study two candidate electoral competition when voters are retrospective voters the experiments consist of a sequence of elections in which subjects play the part of both voters and candidates in each election the incumbent adopts a policy position in a one dimensional policy space and voters are paid on the basis of single peaked utility function over that space for the position adopted by the incumbent neither voters nor candidates are informed of the voter utility functions and the only information received by the voter is the payoff he has received from the present and previous incumbent administrations despite the severely limited information of candidates and voters we find that generally candidates converge toward the median voter ideal point

negotiations in multi issue committees abstract we propose a non cooperative bargaining approach to the problem of collective decision making in committees by modelling this process as a sequential bargaining game the main objective of the paper is to discuss the formation of the agenda in multi issue committees and its relation to the importance of the issues we start by asserting that in the case of a single issue the set of all equilibrium outcomes of our game coincides with the set of coalitional stable outcomes we then consider multi issue committees to discuss the problem of forming agendas we argue that from the point of view of efficiency and stability the most important issues should be put first on the agenda we conclude with a sufficient condition on players preferences which guarantees the efficiency and stability of the bargaining outcomes for every possible agenda

credit contagion and aggregate losses abstract credit contagion refers to the propagation of economic distress from one firm to another this article proposes a reduced form model for these contagion phenomena assuming they are due to the local interaction of firms in a business partner network we study aggregate credit losses on large portfolios of financial positions contracted with firms subject to credit contagion in particular we provide an explicit gaussian approximation of the distribution of portfolio losses this enables us to quantify the relation between the volatility of losses and the determinants of credit contagion we find that contagion processes have typically a second order effect on portfolio losses they induce additional fluctuations of losses around their averages whose size depends on the number of business partners of the firms

evidence on electoral accountability in the u s senate are unfaithful agents really punished many have questioned whether voters are able to hold incumbent officials electorally accountable through a retrospective voting strategy we examine u s senate elections from 1962 to 1990 in forty one states explaining which incumbents ran for reelection and their success in seeking reelection we find that an incumbent s deviation from her state party platform decreases the probability that she will run for reelection and win if she runs furthermore the electoral mechanism is found to be more efficient when voters are better informed finally we find that our divergent party platform model provides a better fit than the median voter model

asymmetric information and the electoral momentum of public opinion polls this paper demonstrates that the existence of public opinion polls amplifies the effects of shifts in the distribution of the public s preferences over the issue space on the election s results voters evaluate candidates by their positions on the issue space and by a valence or general ability dimension some individual s the informed have more precise information about the relative abilities of candidates than others the uninformed since public opinion polls reflect the information of the informed high approval for a candidate at the polls signals to the uninformed that he is more likely to be abler however high approval may also reflect changes in the distribution of the public on the issue space as a result the uninformed partly confuse the two effects and public opinion polls tend to reinforce the effects of shifts in the public s ideological preferences on election results a shift to the right that shows up as more support for the right wing candidate at the polls is partly interpreted as a higher efficiency of this candidate as a result he wins with a higher margin than the margin he would have won with in the absence of polls or under perfect information

polling games and information revelation in the downsian framework abstract we investigate the incentives faced by poll respondents when candidates use polling data to inform their selection of policy platforms focusing on models with a unidimensional policy space single peaked preferences and two office seeking candidates observing a summary statistic from polls that ask respondents their preferences we find that for most environments honest poll response cannot occur in a perfect bayesian equilibrium however simple partially revealing equilibria exist when the poll only asks respondents which party or candidate they prefer when the candidates learn the sample average or see all the data there are partially revealing equilibria that mimic those of the binary message game interpretation of polling data requires knowledge of the equilibrium played as the meanings of poll responses are endogenously determined the analysis suggests that naive use of polling data may be misleading

agenda control by budget maximizers in a multi bureau setting while the present extension of the single issue model of agenda control has permitted the examination of a wide array of questions within a consistent overall framework and has generated new insights some qualifications are in order first the analysis like niskanen s and romer and rosenthal s is strictly limited to one form of agenda control take it or leave it offers made relative to some reversion level second each of the bureaus in this extension are single activity bureaus as a result certain types of agenda control that might exist when there are several dimensions to each bureau s activity such as the mix chosen for various sub activities or the spatial distribution of the bureau s output are ignored see denzau and mackay 1980 and mackay and weaver 1979a b for analyses of these types of agenda control for the case of a single bureau third as a point of reference and for expositional simplicity the analysis for the most part was executed with a single decisive voter on all issues as a result certain complexities and perhaps additional ambiguities were avoided finally in an effort to isolate and study the effects of the supply side phenomenon of agenda control a simple traditional model of the demand side of the collective choice process was employed for the simplest demand side passive supply side models this has typically proved quite adequate as models of the collective choice process have become more complex however taking on more strategic features the weaknesses of certain of the standard assumptions implicit in this demand side model become more apparent in particular the assumption that voters vote sincerely and non strategically is likely to be strained by most specifications of the dynamics of the voting process since learning on the part of voters would condition expectations and perhaps alter choice the inclusion of expectations formation into the model of voter behavior would certainly seem at least at the intuitive level to introduce an interesting additional set of constraints on agenda setters that may limit to some extent the expansionary tendencies described in this paper in short each of these qualifications should provide fertile ground for future research

spatial elections with endorsements and uninformed voters some laboratory experiments this paper presents a laboratory experiment designed to examine voting behavior within a spatial election framework when subjects are only endowed with endorsement information in the experiment subjects are assigned ideal points on a single issue dimension with the aid of an endorsement their task is to vote for the candidate whose position is closer to them the results show that under these conditions subjects are in fact playing a lottery where the odds of being correct is a function of spatial location the study points out that researchers should be aware of an information bias in models that use this particular information source

busy voters agenda control and the power of information t he correspondence between individual preferences and electoral outcomes is often affected by the existence of information asymmetries among electoral participants and the presence of individuals or groups who exercise some form of agenda control while the effects of agenda control in political decision making are widely recognized the effects of information asymmetries are not as well understood since information asymmetries are fundamental characteristics of most elections a deep understanding of the correspondence between individual preferences and electoral outcomes requires a serious consideration of the effects of information i develop a generalizable agenda control model that takes as given the observation that most voters are not naturally inclined to invest in political information the model allows me to provide a dynamic description of how voters and political elites can adapt to the information problems that characterize political decision making it also allows me to demonstrate the effect of these adaptations on electoral outcomes

electoral competition with informed and uninformed voters i present a model of electoral competition in which candidates raise campaign contributions by choosing policies that benefit interest groups and then expend those contributions to influence voters who are uninformed about the policies informed voters however vote based on those policies so candidates face a trade off between choosing a policy to generate funds to attract the uninformed vote and choosing a policy to attract the informed vote electoral equilibria are characterized for two categories of policies particularistic and collective in the case of particularistic policies the equilibrium policies of the candidates are separated if the proportion of uninformed voters is sufficiently high and the degree of separation is an increasing function of that proportion the model is extended to include the public financing of elections and incumbency advantages for the case of collective policies the candidates locate at the median of the ideal points of the informed voters and contributions are zero

sampling equilibrium with an application to strategic voting we suggest an equilibrium concept for a strategic model with a large number of players in which each player observes the actions of only a small number of the other players the concept fits well situations in which each player treats his sample as a prediction of the distribution of actions in the entire population and responds optimally to this prediction we apply the concept to a strategic voting model and investigate the conditions under which a centrist candidate can win the popular vote although his strength in the population is smaller than the strengths of the right and left candidates

service induced campaign contributions and the electoral equilibrium candidates for office are modeled as promising services such as support for legislation and intervention in the bureaucracy to interest groups in exchange for campaign contributions an electoral equilibrium is characterized in which candidates choose service contribution offers and interest groups choose whether to contribute the model provides several explanations of congressional incumbents success in over 90 percent of their reelection contests a recognition advantage a high personal valuation of the office a lower cost of providing services and policy alignment with high demand interest groups the model yields predictions that are consistent with empirical findings on the relation between campaign contributions and election outcomes