interest rate swaps abstract using quotations from two interest rate swap dealers with different credit ratings aaa and a we examine the effect of dealers credit reputations on swap quotations and bid offer spreads the aaa offer rates are significantly higher than the a offer rates and the aaa bid rates are significantly lower than the a bid rates we also document the relation between swap rates and par bond yields estimated from london interbank offered rate libor and bid rate libid data we identify some of the problems in testing the implications of swap pricing theory

media competition and electoral politics we build a framework linking competition in the media market to political participation media outlets report on the ability of candidates running for office and compete for audience through their choice of slant citizens consume news only if the expected utility of being informed about candidates ability is sufficiently large for their group collectively our results can reconcile seemingly contradictory empirical evidence showing that entry in the media market can either increase or decrease turnout while information pushes up independent turnout partisans adjust their turnout to the ability of their preferred candidate and on average they vote less when informed

mandate and paternalism a theory of large elections we propose a game theoretic costly voting model of large elections that incorporates the assumption that mandate matters this innovation is motivated by empirical evidence that us representatives with larger victory margins on average vote in a more partisan manner if voters are paternalistic this new model predicts strictly positive limiting turnout rates as the population grows arbitrarily large the model also preserves stylized comparative statics results of costly voting models including the underdog effect and the competition effect finally we develop an innovative computational strategy to solve the model for large finite electorates and show that our results are not only qualitatively but also quantitatively relevant

term premiums in bond returns abstract this paper examines expected returns on u s treasury bills and on u s government bond portfolios expected bill returns are estimated from forward rates and from sample average returns both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months reliable inferences are limited to treasury bills and thus to maturities up to a year the variability of longer term bond returns preempts precise conclusions about their expected returns

costly information acquisition is it better to toss a coin abstract this paper presents a strategic model of common value elections with endogenous information acquisition it proves that majoritarian elections can fail to aggregate information when voters have heterogeneous skills and provides necessary and sufficient conditions for information aggregation inefficiencies can be partially corrected by limiting participation to the most competent citizens a result which provides a rational foundation for epistocratic government

a theory of participation in elections we analyze a model of participation in elections in which voting is costly and no vote is pivotal ethical agents are motivated to participate when they determine that agents of their type are obligated to do so unlike previous duty based models of participation in our model an ethical agent s obligation to vote is determined endogenously as a function of the behavior of other agents our model predicts high turnout and comparative statics that are consistent with strategic behavior jel d72

the influence of the number of statewide legislative referendums on voter participation in the us this empirical study seeks to broaden the interpretation of the rational voter model so as to include the potential effects of the number of statewide legislative referendums this study tests the hypothesis that greater numbers of such referendums increase voter turnout because they elevate the expected gross benefits egb of voting by empowering voters while not significantly increasing the expected gross costs egc of voting using state level data for the 2006 general election in the us as well as the 2004 us presidential election and after allowing for a variety of economic and demographic factors this study finds compelling evidence that the number of statewide legislative referendums does significantly increase voter turnout

voter motivation and the quality of democratic choice abstract the efficiency of committee voting and referenda with common interest issues critically depends on voter motivation i e on voters willingness to cast an informed vote if voters are motivated voting may result in smart choices because of information aggregation but if voters remain ignorant delegating decision making to an expert may yield better outcomes we experimentally study a common interest situation in which we vary voters information cost and the competence of the expert we find that voters are more motivated to collect information than predicted by standard theory and that voter motivation is higher when subjects demand to make choices by voting than when voting is imposed on subjects

the default risk of swaps we characterize the exchange of financial claims from risky swaps these transfers are among three groups shareholders debtholders and the swap counterparty from this analysis we derive equilibrium swap rates and relate them to debt market spreads we then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders in a simplified case we obtain closed form solutions for the value of the default risk in the swap for interest rate swaps we obtain numerical solutions for the equilibrium swap rate including default risk we compare these with equilibrium debt market default risk spreads swaps have been one of the most explosive and important innovations in international capital markets in the last 10 years in its simplest form a swap consists of an agreement hetween two entities called counterparties to exchange in the future two streams of cash flows in a currency swap these streams of cash flows consist of a stream of interest and principal payments in one cvtrrency exchanged for a stream of interest and principal payments of the same maturity in another currency in an interest rate swap they consist of streams of interest payments of one type fixed or floating exchanged for streams of interest payments of the other type in the same currency the two types of swap are shown in appendix 1 the economic importance of swap transactions is the fact that they can he comhined with deht issues to change the nature of the liahility for the borrower the sum of a hond issue and a currency swap gives a net liability stream which is equivalent to transforming the bond liability into a different currency a floating rate note combined with an interest rate swap results in a liability equivalent to fixed rate debt two issues have dominated the academic literature on swaps the first concerns the reasons for their use arbitrage of imperfections in capital markets was the original cause of their appearance price and henderson 1984 turnbull 1987 shows that lowering borrowing costs by a synthetic transaction involving a swap is not possible in a complete integrated capital market subsequent authors wall and pringle 1988 arak estrella groodman and silver 1988 smith smithson and wakeman 1987 observe

a biological theory of social discounting we consider a growth model in which intergenerational transfers are made via stocks of private and public capital private capital is the outcome of individuals private savings while decisions regarding public capital are made collectively we hypothesize that private saving choices evolve through individual selection while public saving decisions are the result of group selection the main result of the paper is that the equilibrium rate of return to private capital is at least 2 3 percent more than the rate of return to public capital in other words social choices involving intertemporal trade offs exhibit much more patience than individual choices do jel d11 d71 d91 h43 policy issues often involve intergenerational trade offs one highly publicized and polarizing example concerns the appropriate response to global warming while nordhaus 1994 concluded that there was no need to enact draconian policies to reduce co 2 emissions immediately stern 2006 insisted that the situation was in fact dire the difference in position can be attributed almost exclusively to the rates of time preference assumed by these two authors nordhaus used a few percent based on estimates deriving from private economic behavior while stern essentially set it equal to zero on the basis of a philosophical stance it then becomes clear that co 2 emissions should be taken seriously if for some reason private rates of time preference are too high when applied to public decisions since such decisions should then be made on the basis of a lower rate 1

turnout political preferences and information experimental evidence from peru abstract i combine a field experiment with a change in voting laws reducing the fine for abstention to assess the effects of monetary incentives to encourage voter participation in a real world election using experimental variation in the perceived reduction of the fine for abstention i estimate that receiving information about a reduction in the fine by 50 75 percent causes a decrease in turnout of 2 6 5 3 percentage points these estimates imply a cost elasticity of voting of 0 22 the reduction in turnout is driven by voters who are in the center of the political spectrum hold less political information and have lower subjective value of voting the increase in abstention does not change aggregate preferences for specific policies further involvement in politics as measured by the decision to acquire political information is independent of the level of the fine additional results indicate that the reduction in the fine reduces the incidence of vote buying and increases the price paid for a vote

multicandidate elections aggregate uncertainty in the laboratory the rational voter model is often criticized on the grounds that two of its central predictions the paradox of voting and duverger s law are at odds with reality recent theoretical advances suggest that these empirically unsound predictions might be an artifact of an arguably unrealistic assumption the absence of aggregate uncertainty about the distribution of preferences in the electorate in this paper we propose direct empirical evidence of the effects of aggregate uncertainty in multicandidate elections adopting a theory based experimental approach we explore whether aggregate uncertainty indeed favors the emergence of non duverger s law equilibria in plurality elections our experimental results support the main theoretical predictions

the paradox of voter participation a laboratory study it is widely believed that rational choice theory is grossly inconsistent with empirical observations about voter turnout we report the results of an experiment designed to test the voter turnout predictions of the rational choice palfrey rosenthal model of participation with asymmetric information we find that the three main comparative statics predictions are observed in the data the size effect whereby turnout goes down in larger electorates the competition effect whereby turnout is higher in elections that are expected to be close and the underdog effect whereby voters supporting the less popular alternative have higher turnout rates we also compare the quantitative magnitudes of turnout to the predictions of nash equilibrium we find that there is undervoting for small electorates and overvoting for large electorates relative to nash equilibrium these deviations from nash equilibrium are consistent with the logit version of quantal response equilibrium which provides a good fit to the data and can also account for significant voter turnout in very large elections

manipulated electorates and information aggregation we study information aggregation with a biased election organizer who recruits voters at some cost voters are symmetric ex ante and prefer policy a in state a and policy b in state b but the organizer prefers policy a regardless of the state each recruited voter observes a private signal that is imperfectly informative about the unknown state but does not learn the size of the electorate in contrast to existing results for large elections there are equilibria in which information aggregation fails as the voter recruitment cost disappears a perfectly informed organizer can ensure that policy a is implemented independent of the state by appropriately choosing the number of recruited voters in each state

endogenous enforcement institutions we model the state as a self enforcing agreement over the use of force powerful individuals punish violations of contracts and property rights and if they shirk or abuse their power society reverts to a low production anarchy stage our model has two implications first improvements in coercion move the optimal enforcement system from private ordering where coercive punishments are not used to centralized state where punihments sanction violations by citizens but not by the ruler to decentralized state where punishments sanction all violations second institutions that reinforce the allegiance of state militias to the law simultaneously insure that contract violations are punished and that the ruler does not expropriate citizens thus they are more productive than judicial institutions which solely facilitate contract enforcement the model is consistent with the historical correlation between technological advances in coercion and the transition from private to state enforcement and with the fact that institutional constraints on the executive affected the long run economic development of nations more than improvements in judicial institutions acemoglu and johnson 2005 we also provide a framework for the optimal sequencing of institutional reforms they should focus first on the binding self enforcement constraint punishment or expropriation and switch to other constraints when the initially binding constraint becomes slack

a comparison of futures and forward prices abstract this paper uses the pricing models of cox ingersoll and ross 1981 richard and sundaresan 1981 and french 1982 to examine the relation between futures and forward prices for copper and silver there are significant differences between these prices the average differences are generally consistent with the predictions of the futures and forward price models however these models are not helpful in describing intra sample variations in the futures forward price differences this failure is apparently caused by measurement errors in both the price differences and in the explanatory variables

an empirical test of agency cost reduction using interest rate swaps abstract this paper tests a model based on wall s wall l 1989 journal of banking and finance 13 261 270 hypothesis of agency cost reduction using interest rate swaps we find a significant positive relationship between the risk of the firm and the reduction of agency costs measured by the continuously compounded excess return car of the firm our findings are consistent with wall s hypothesis and other theories of swap transactions and in explaining the existence and growth of the swap market

is mandatory voting better than voluntary voting we investigate the welfare effects of policies that increase voter turnout in costly voting models in a generalized costly voting model we show that if the electorate is sufficiently large then increasing voter turnout is generically efficient increasing turnout in small elections is only inefficient if the electorate is evenly divided or if there is already almost complete voter participation finally we argue that the effects underlying our results are robust in a large class of endogenous participation models

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth the intertemporal relative price effect tends to improve the current account while the wealth effect contributes to a deterioration for a sufficiently low degree of intertemporal consumption substitution the wealth effect is shown to dominate in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

altruism and voting a large turnout result that does not rely on civic duty or cooperative behavior abstract i propose a game theoretic model of costly voting that predicts significant turnout rates even when the electorate is arbitrarily large the model has two key features that jointly drive the result i some agents are altruistic or ethical ii among the agents who prefer any given candidate the fraction of altruistic agents is uncertain when deciding whether to vote or not an altruistic agent compares her private voting cost with the expected contribution of her vote to the welfare of the society under suitable homogeneity assumptions the asymptotic predictions of my model coincide with those of feddersen and sandroni 12 up to potential differences between the respective parameters that measure the importance of the election i demonstrate with an example that these homogeneity assumptions are not necessary for qualitative predictions of my model i also show that when the fractions of altruistic agents are known turnout rates will typically be close to zero in a large election despite the presence of altruism

factor models and the correlation structure of interest rates some evidence for usd gbp dem and jpy abstract the aim of this paper is to develop models for producing accurate forecasts for the correlation of spot and forward interest rates correlation forecasts generated from factor models where the correlations are expressed as a function of few underlying factors are compared to forecasts produced by less sophisticated models like the full historical and constant correlation model contrary to previous studies where the selection of factors is rather arbitrary we test two factor identification methodologies the first is based on factor analysis and the second is based on minimising the residual cross correlations we show that a three factor model with factors identified by minimising the residual cross correlation criterion is sufficient to describe the correlation structure of interest rates furthermore we show that it might be preferable to assume that all forward rate correlations are equal rather than using a misspecified factor model and that the spot factor model developed consistently outperformed long established models like the barbell model

sequential voting in large elections with multiple candidates abstract i analyze strategic voting incentives in large elections with three candidates when voting takes place sequentially voters have perfect information about their private preferences but do not know the distribution from which other voters preferences are drawn if a candidate finishes last in an early voting round voters deduce that this candidate is likely to be less popular amongst the remaining voters and the remaining voters almost always have an incentive to stop voting for this candidate by contrast sincere voting equilibria can exist under either simultaneous voting or an early voting round of sequential voting without knife edge assumptions

an evolutionary analysis of turnout with conformist citizens abstract we propose an evolutionary analysis of a voting game where citizens have a preference for conformism that adds to the instrumental preference for the electoral outcome multiple equilibria arise and some generate high turnout simulations of best response dynamics show that high turnout is asymptotically stable if conformism matters but its likelihood depends on the reference group for conformism high turnout is more likely when voters care about their own group s choice as this better overrides the free rider problem of voting games comparative statics on the voting cost distribution and the groups composition are also done

political rents and voter information in search equilibrium abstract political parties committed to grab rents may run for election and even win if citizens are uninformed but how is the political equilibrium affected if citizens can mitigate this information problem through costly information search we propose a political equilibrium theory with endogenous information search and turnout we show that i the political equilibrium generates political uncertainty characterized by a distribution of rent policies i i the expectation of this rent distribution is inversely u shaped in the information search cost i i i turnout is lower and rents are higher the more proportional is the electoral system

aggregating information by voting the wisdom of the experts versus the wisdom of the masses this article analyzes participation and information aggregation in a common value election with continuous private signals in equilibrium some citizens ignore their private information and abstain from voting in deference to those with higher quality signals even as the number of highly informed peers grows large however citizens with only moderate expertise continue voting so that voter participation remains at realistic levels e g 50 to 60 percent for simple examples the precise level of voter turnout along with the margin of victory are determined by the distribution of expertise improving a voter s information makes her more willing to vote consistent with a growing body of empirical evidence but makes her peers more willing to abstain providing a new explanation for various empirical patterns of voting equilibrium participation is optimal even though the marginal voter may have very little e g below average expertise and even though nonvoters information is not utilized copyright oxford university press

sincere voting in large elections abstract austen smith and banks 1996 showed that sincere informative voting is not typically an equilibrium of the condorcet voting model when the size of the electorate is large here we reverse their finding by adding a third type of voter one that receives no information in favor of either of the alternatives as well as global uncertainty about the probability that each voter is such a no evidence type the expected number of no evidence type voters can be arbitrarily small nevertheless if the electorate is large enough then each of the two standard condorcet types votes sincerely in every nondegenerate type symmetric equilibrium

the valuation of floating rate instruments abstract a framework for valuing floating rate notes is developed to examine the effects of 1 lags in the coupon formula 2 special contractual features and 3 default risk evidence from a sample of floaters indicates they sold at significant discounts while lags in the coupon formulas and other contractual features make these notes more variable they do not account for the magnitude of the discounts we conclude that the fixed default premium in the coupon formula of a typical note is inadequate to compensate for time varying default premiums demanded by investors who treat other corporate short term paper as close substitutes

revealed political power this paper adopts a revealed preference approach to the question of what can be inferred about bias in a political system we examine a dynamic environment in which individuals dier by income each period long run preference profiles are unobserved to an outside observer but are known to belong to a well behaved class in which individual preferences are ordered by income in each state policy data is summarized by a markov policy rule the observer makes inferences about the underlying distribution of political power as if political power were derived from a wealth weighted voting system with weights that can vary across states the weights determine the nature and magnitude of the wealth bias positive weights on relative income in any period indicate an elitist bias in the political system whereas negative weights indicate a populist one we ask what class of weighted systems can rationalize a given policy rule as a weightedmajority outcome each period our first result shows that without further knowledge all forms of bias are possible any markov policy rule can be shown to be rationalized by any system of wealth weighted voting an additional single crossing restriction on preferences can however rule out certain weighting systems we then augment policy data with polling data and show that the set of rationalizing wealth weights are bounded above and below in some cases polls can provide information about the change in political inequality across time

redistribution in a model of voting and campaign contributions abstract i propose a framework in which individual political participation can take two distinct forms voting and contributing resources to campaigns in a context in which the negligible impact of any individual s actions on aggregate outcomes is fully recognized by all agents i then use the framework to reassess the relationship between inequality and redistribution the model shows that even though each contribution has a negligible impact the interaction between contributions and voting leads to an endogenous wealth bias in the political process as the advantage of wealthier individuals in providing contributions encourages parties to move their platforms closer to those individuals preferred positions this mechanism can in turn explain why the standard median voter based prediction that more inequality produces more redistribution has received little empirical support higher inequality endogenously shifts the political system further in favor of the rich in equilibrium there is a non monotonic relationship in which redistribution is initially increasing but eventually decreasing in inequality i present some empirical evidence supporting the framework using data on campaign contributions from us presidential elections in particular inequality increases contributions to republicans but not to democrats as predicted by the model

corporate hedging and speculative incentives implications for swap market default risk this paper demonstrates a tradeoff between the risk shifting and hedging incentives of firms and identifies conditions under which each dominates a firm may have the incentive to hedge in a multi period context even if no such incentive exists in a single period one unrestricted access to swaps in the presence of asymmetric information about firm type and the swapping motive would lead to unbounded speculation resulting in breakdowns in swap and debt markets price based methods are unable to control this and market makers have to rely upon additional exposure information or credit enhancement devices to preserve equilibrium

decomposing political advertising effects on vote choices this paper studies the channels through which political television advertising influences individuals voting decisions scholars are interested to learn whether advertising primarily persuades people to change their choices of candidates or mobilizes people to vote i find that advertising does both about 60 to 70 of advertising s effect is persuasion and 30 to 40 of it is mobilization advertising s effects are stronger on those who did not plan to vote for a major party candidate to decompose the impact into its components the present paper estimates a multinomial probit model that permits analysis of decisions of turnout and candidate choice jointly in a markov chain framework in contrast to most studies that estimate the effects of aggregated exposure to advertising on voters choices on election day i study how advertising influences peoples monthly voting intentions leading up to election day in the context of the 2008 presidential election the magnitude of the advertising effect is not large enough to overcome john mccain s significant deficit but it potentially could have changed the outcomes of other close elections such as those in 2000 and 2016

monetary autonomy and exchange rate dynamics under currency substitution abstract this paper uses a two country model to demonstrate that currency substitution is a channel for the international transmission of monetary disturbances under flexible exchange rates in the long run the division of world real wealth and consumption and real exchange rates depend on the growth rates of both monies but inflation of prices denominated in a particular currency depends only on the rate of growth of that money in the short run currency substitution combined with perfect foresight can be responsible for overshooting in the exchange rate in both price levels in real exchange rates and in national levels of real wealth and consumption

follow the leader theory and evidence on political participation using state by state voting data for u s presidential elections the authors observe that voter turnout is a positive function of predicted closeness to explain the strategic component of political participation they develop a follow the leader model political leaders expend effort according to their chance of being pivotal which depends on the expected closeness of the race at both state and national levels and how voters respond to their effort structural estimation supports this model for example a 1 percent increase in the predicted closeness at the state level stimulates leaders efforts which increases turnout by 0 34 percent

inferring strategic voting we estimate a model of strategic voting and quantify the impact it has on election outcomes because the model exhibits multiplicity of outcomes we adopt a set estimator using japanese general election data we nd a large fraction 75 3 80 3 of strategic voters only a small fraction 2 4 5 5 of whom voted for a candidate other than the one they most preferred misaligned voting existing empirical literature has not distinguished between the two estimating misaligned voting instead of strategic voting accordingly while our estimate of strategic voting is high our estimate of misaligned voting is comparable to previous studies

ignorance and bias in collective decisions we study theoretically and experimentally a committee with common interests committee members do not know which of two alternatives is the best but each member can acquire privately a costly signal before casting a vote under either majority or unanimity rule in the experiment as predicted by bayesian equilibrium voters are more likely to acquire information under majority rule and attempt to counter the bias in favor of one alternative under unanimity rule as opposed to bayesian equilibrium predictions however many committee members vote when uninformed moreover uninformed voting is strongly associated with a lower propensity to acquire information we show that an equilibrium model of subjective prior beliefs can account for both these phenomena and provides a good overall fit to the observed patterns of behavior both in terms of rational ignorance and biases

macroeconomic policy exchange rate dynamics and optimal asset accumulation the paper develops a model of exchange rate and current account determination for a small economy peopled by infinitely lived utility maximizing households in this setting a central bank purchase of foreign exchange has no real effects when central bank foreign reserves earn interest at the world rate and proceeds are returned to the public in contrast an increase in the monetary growth rate does have real effects even in the long run the model developed here implies that an increase in government spending may lead to a surplus on current account the external adjustment process predicted by the model is one in which consumption real balances and external assets all rise or fall simultaneously

downs meets d aspremont and company convergence versus differentiation in politics and the media abstract media firms have incentives to differentiate their news products to soften price competition when consumers value cognitive consistency between the news they read and the policies they support politicians are induced to propose more polarized policies to conform to a polarized media landscape a stronger commercial motive or a weaker preference for editorial neutrality in the media exacerbates this effect and causes party policies to become more extreme we find that prices for news products are higher when consumers have a demand for cognitive consistency despite the fact that maximal product differentiation does not hold for media firms

default risk in a market model abstract this paper presents a theoretical model of default risk in the context of the market model approach to interest rate dynamics we propose a model for finite interval interest rates such as libor which explicitly takes into account the possibility of default through the influence of a point process with deterministic intensity we relate the defaultable interest rate to the non defaultable interest rate and to the credit risk characteristics default intensity and recovery rate we find that the spread between defaultable and non defaultable rate depends on the non defaultable rate even when the default intensity is deterministic prices of a cap on the defaultable rate and of a credit spread option are derived we consider swaps with unilateral and bilateral default risk and derive the fair fixed swap rate in both cases under the condition that both counterparties are of the same risk class we show that for a monotonously increasing term structure the swap rate for a defaultable swap will lie below the swap rate for a swap without default risk

the runner up effect exploiting regression discontinuity designs in brazilian indian and canadian first past the post elections we document that second place candidates are substantially more likely than close third place candidates to run in and win subsequent elections since both candidates lost the election and had similar electoral performance this is the effect of being labeled the runner up selection into candidacy is unlikely to explain the effect on winning subsequent elections and we find no effect of finishing in third place versus fourth place we develop a simple model of strategic coordination by voters that rationalizes the results and provides further predictions that are supported by the data

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

formulating research policy on expert advice abstract national research assessments represent the principal policy used by countries with public university systems to improve the quality of their universities research they typically employ expert panels of local academics to assess journal quality and use such assessments to reward publications we propose a model of how experts assess quality and test this model using data from the recent australian assessment controlling for objective quality we show that experts cognitive biases dominate their assessments consequently such assessments exaggerate the quality of the experts research and understate that of their colleagues our model can explain 95 of the variation in assessments

turnout across democracies world democracies widely differ in legislative executive and legal institutions different institutional environments induce different mappings from electoral outcomes to the distribution of power we explore how these mappings affect voters participation in an election we show that the effect of such institutional differences on turnout depends on the distribution of voters preferences we uncover a novel contest effect given the preferences distribution turnout increases and then decreases when we move from a more proportional to a less proportional power sharing system turnout is maximized for an intermediate degree of power sharing moreover we generalize the competition effect common to models of endogenous turnout given the institutional environment turnout increases in the ex ante preferences evenness and more so when the overall system has lower power sharing these results are robust to a wide range of modeling approaches including ethical voter models voter mobilization models and rational voter models

partisan bias and expressive voting abstract we conduct an experiment to characterize the expressive voting behavior of political partisans we find that participants who are asked to vote on the answer to factual questions tend to offer more partisan responses than those who must answer as decisive individuals we further test whether voters exploit corrective information that sometimes challenges their partisan views when information is available we observe smaller partisan gaps and more correct responses especially when the information is free when information is costly to acquire we find that voters generally choose to remain uninformed consistent with the downsian theory of rational ignorance

altruism within the family reconsidered do nice guys finish last this paper criticizes the view that altruism either increases the benefits of group interactions or improves the allocation of resources within families the authors identify a variety of circumstances in which members of a group would prefer to interact with less altruistic individuals and in which the efficiency of resource allocation is inversely related to the prevailing degree of altruism reasons that altruism might be a counter productive social force include 1 it can alter the social utility possibility frontier in surprising and sometimes unfortunate ways 2 it can entail exploitability causing family members to behave in ways that leave all parties worse off 3 altruists may take inefficient actions to preempt exploitation and 4 family members may establish efficient resource allocation by punishing selfish behavior a rise in the level of altruism may lead to the exclusion of certain punishment strategies on the grounds of credibility 1 general positive result is that sufficiently high levels of altruism almost always lead to efficient resource allocation one should not necessarily expect to find strong altruistic linkages between spouses nor should altruism necessarily contributed to marital stability in addition to the connections between this work and the literature on family behavior this analysis has broader implications concerning the role of altruism in society and the evolution of social conscience

the impact of collateralization on swap rates interest rate swap pricing theory traditionally views swaps as a portfolio of forward contracts with net swap payments discounted at libor rates in practice the use of marking to market and collateralization questions this view as they introduce intermediate cash flows and alter credit characteristics we provide a swap valuation theory under marking to market and costly collateral and examine the theory s empirical implications we find evidence consistent with costly collateral using two different approaches the first uses single factor models and eurodollar futures prices and the second uses a formal term structure model and treasury swap data the traditional approach to interest rate swap valuation sundaresan 1991a and duffie and singleton 1997 treats a swap as a portfolio of forward contracts on the underlying floating interest rate under specific assumptions regarding the nature of default and the credit risk of the counterparties duffie and singleton 1997 prove that swap rates are par bond rates of an issuer who remains at libor quality throughout the life of the contract this result is extremely useful for extracting zero coupon bond prices pricing swap derivatives and testing spot rate models despite the popularity of the traditional view market practice brings into question some of the underlying assumptions of this approach as the swap market rapidly grew in the late 1980s and early 1990s an increasingly diverse group of counterparties entered the market to mitigate their exposure to counterparty credit risk market participants began using a number of credit enhancements to improve the credit quality of swap contracts without question the most important credit enhancement is the posting of collateral in the amount of the current mark to market value of the swap contract isda 1999 due to these credit enhancements market participants commonly view interest rate swaps as free of counterparty default risk see e g tuckman 2002 this implies that in contrast to the traditional approach swap rates should be discounted not at default risky libor rates but rather at default free rates johannes and sundaresan are with the columbia business school we thank seminar partici

internet and politics evidence from u k local elections and local government policies we empirically study the effects of broadband internet diffusion on local election outcomes and on local government policies using rich data from the u k our analysis shows that the internet has displaced other media with greater news content i e radio and newspapers thereby decreasing voter turnout most notably among less educated and younger individuals in turn we find suggestive evidence that local government expenditures and taxes are lower in areas with greater broadband diffusion particularly expenditures targeted at less educated voters our findings are consistent with the idea that voters information plays a key role in determining electoral participation government policies and government size

homo ludens social rationality and political behavior the most straightforward defense of political democracy is grounded in rational choice political democracy gives people power in public life parallel to that afforded by markets in private life the power to turn their preferences into social outcomes however rational choice models of voter behavior dramatically underpredict voter turnout in all but the smallest elections fiorina 1990 has called this the paradox that ate rational choice theory this anomaly is the centerpiece of green and shapiro s 1994 critique of rational choice methodology in political theory this paper proposes a form of social rationality that strengthens the classical rational actor model this concept explains many central statistical regularities concerning voter turnout and the historical regularities concerning collective action

a group rule utilitarian approach to voter turnout theory and evidence this paper explores a group rule utilitarian approach to understanding voter turnout inspired by the theoretical work of john c harsanyi 1980 and timothy j feddersen and alvaro sandroni 2002 it develops a model based on this approach and studies its performance in explaining turnout in texas liquor referenda the results are encouraging the comparative static predictions of the model are broadly consistent with the data and a structurally estimated version of the model yields reasonable coefficient estimates and fits the data well the structurally estimated model also outperforms a simple expressive voting model

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

rational turnout the neglected role of groups rational choice theories have difficulty accounting for individual participation in collective action voting is among the acts hardest to explain consumption benefits have been proposed to account for nonzero turnout the model presented here establishes a political investment basis for these benefits i argue that voters often act not in isolation but as part of groups with shared interests while individuals still vote because of consumption benefits arising from the act of voting some of these consumption benefits are provided by group leaders out of collective benefits received by the group in return for its votes the collective benefit comes from a candidate adopting policy positions closer to those of the group in passing i show that the widespread availability of public opinion polling increases the candidate s incentive to shift position finally some data from recent off year elections are shown to be consistent with the model

voter participation and strategic uncertainty the paradox of not voting is examined in a model where voters have uncertainty about the preferences and costs of other voters in game theoretic models of voter participation under complete information equilibrium outcomes can have substantial turnout even when voting costs are relatively high in contrast when uncertainty about preferences and costs is present only voters with negligible or negative net voting costs participate when the electorate is large

overconfidence in political behavior this paper studies theoretically and empirically the role of overconfidence in political behavior our model of overconfidence in beliefs predicts that overconfidence leads to ideological extremeness increased voter turnout and stronger partisan identification the model also makes nuanced predictions about the patterns of ideology in society these predictions are tested using unique data that measure the overconfidence and standard political characteristics of a nationwide sample of over 3 000 adults our numerous predictions find strong support in these data in particular we document that overconfidence is a substantively and statistically important predictor of ideological extremeness voter turnout and partisan identification jel c83 d03 d72 d83

moral bias in large elections theory and experimental evidence in this article we provide evidence that voters in large elections tend to vote against their material self interest and to vote for a morally or ethically appealing alternative it may seem puzzling that voters might behave differently in small elections than they do in large ones however we show that such behavior is a logical consequence of voters having a conflict between obtaining a better material outcome and choosing a moral action we develop a simple model of this conflict and show that decreasing the probability that a single vote is decisive i e pivot probability reduces the importance of outcomes relative to actions in voter decision making because pivot probability is generally small in large elections alternatives that are understood by voters to be morally superior are more likely to win in large elections than in small ones thus compared to the preferences of voters election results will be biased in favor of moral alternatives 1 the model produces a set of predictions that we test in a laboratory experiment to clarify ideas consider a situation in which two outcomes are possible a and b assume that b gives

cost benefit analyses versus referenda we consider a planner who chooses between two public policies and ask whether a referendum or a cost benefit analysis leads to higher welfare we find that a referendum leads to higher welfare than a cost benefit analysis in a common value environment cost benefit analysis is better in a private value environment

turnout and closeness evidence from 60 years of bavarian mayoral elections one prediction of the calculus of voting is that electoral closeness positively aects turnout via a higher probability of one vote being decisive i test this theory with data on all mayoral elections in the german state of bavaria between 1946 and 2009 importantly i use constitutionally prescribed two round elections to measure electoral closeness and thereby improve on existing work that mostly uses expost measures that are prone to endogeneity the results suggest that electoral closeness matters a one standard deviation increase in closeness increases turnout by 1 68 percentage points which corresponds to 1 of a standard deviation in this variable i also evaluate how other factors like electorate size or rain on election day aect turnout dierentially depending on the closeness of the race

a behavioral model of turnout the so called paradox of voting is a major anomaly for rational choice theories of elections if voting is costly and citizens are rational then in large electrorates the expected turnout would be small for if many people voted the chance of anyone being pivotal would be too small to make the act worthwhile yet many people do vote even in large national elections to address this puzzle we construct a model of adaptive rationality citizens learn by simple trial and error repeating satisfactory actions and avoiding unsatisfactory ones their aspiration levels which code current payoffs as satisfactory or unsatisfactory are also endogenous themselves adjusting to experience our main result is that agents who adapt in this manner turn out in substantial numbers even in large electorates and even if voting is costly for everyone standard conceptions of rational behavior do not explain why anyone bothers to vote in a mass election turnout is the paradox that ate rational choice theory fiorina 1990 334 we would like to thank stephen ansolabehere sorin antohi glenn ellison dedre gentner sunil kumar david laitin tze lai arthur lupia elijah millgram lincoln moses scott page tom palfrey john patty paul pfleiderer adam simon joel sobel carole uhlaner three anonymous referees and the participants in the political economics seminar at the gsb the stanford caltech workshop the unc american politics research group the ucla conference on cognition emotion and rational choice panels at the annual meetings of the mpsa and the apsa the agent 2000 workshop the seventh annual wallis conference the cmu pitt colloquium series and the center for advanced study in the behavioral sciences seminar series for their helpful comments this paper was written while ting was at the university of north carolina at chapel hill and he thanks unc s department of political science for its support it was revised while bendor was a fellow at the casbs and he is grateful for the center s financial and intellectual support

electoral competition with rationally inattentive voters how do voters allocate costly attention to alternative political issues and how does selective ignorance of voters interact with policy design by politicians we address these questions by developing a model of electoral competition with rationally inattentive voters rational inattention amplies the eects of preference intensity because voters pay more attention where stakes are higher the model has many potential applications and those that we discuss in more detail imply that extremist voters are more attentive and inuential public goods are under provided divisive issues receive more attention and less transparent candidates choose more extreme policies endogenous attention can also lead to multiple equilibria explaining how poor voters in developing countries can be politically empowered by welfare programs

the relative valuation of caps and swaptions theory and empirical evidence although traded as distinct products caps and swaptions are linked by noarbitrage relations through the correlation structure of interest rates using a string market model we solve for the correlation matrix implied by swaptions and examine the relative valuation of caps and swaptions we find that swaption prices are generated by four factors and that implied correlations are lower than historical correlations long dated swaptions appear mispriced and there were major pricing distortions during the 1998 hedge fund crisis cap prices periodically deviate significantly from the no arbitrage values implied by the swaptions market the growth in interest rate swaps during the past decade has led to the creation and rapid expansion of markets for two important types of swap related derivatives interest rate caps and swaptions these over the counter derivatives are widely used by many firms to manage their interest rate risk exposure and collectively represent the largest class of fixed income options in the financial markets the international swaps and derivatives association isda estimates that the total notional amount of caps and swaptions outstanding at the end of 1997 was over 4 9 trillion which was more than 300 times the 15 billion notional of all chicago board of trade treasury note and bond futures options combined caps and swaptions are generally traded as separate products in the financial markets and the models used to value caps are typically different from those used to value swaptions furthermore most wall street firms use a piecemeal approach in calibrating their models for caps and swaptions making it difficult to evaluate whether these derivatives are fairly priced

the performance of pivotal voter models in small scale elections evidence from texas liquor referenda abstract this paper explores the ability of pivotal voter models to explain voter behavior in small scale elections using data from texas liquor referenda the findings provide little support for the view that pivotal voter models are a reasonable theory for understanding small scale elections interestingly this is not because they cannot explain the levels of turnout in the data but rather because they cannot explain the size of the winning margins the logic of pivotal voter models implies that elections must be expected to be close even if there is a significant difference between the sizes of the groups or the intensity of their preferences with even a relatively small number of eligible voters elections that are expected to be close ex ante must end up being close ex post however in the data winning margins are often significant

assessing credit risk in a financial institution s off balance sheet commitments the first part of this paper presents a general approach to valuing a financial institution s contracts when there is credit risk the approach uses contingent claims pricing theory and is particularly appropriate for an off balance sheet contract such as a swap that can have either a positive or a negative value to the counterparty the second part of the paper extends the analysis by considering the problem faced by bank supervisory authorities of determining capital requirements for off balance sheet contracts

social incentives and voter turnout evidence from the swiss mail ballot system this paper uses a natural experiment to document the impact of social pressure on voting behavior the main hypothesis is that social pressure creates incentives to vote for the purpose of being seen at the voting act this incentive is particularly high in small and close knit communities empirically i analyze the effect of postal voting on voter participation in switzerland optional postal voting decreased the voting costs but simultaneously removed the social pressure to vote in spite of the large reduction in voting costs the effect on aggregate turnout was small however voter participation was more negatively affected in the smaller communities this lends support to the view that social incentives played a role for certain people s voting decisions jel h0 z13

accountability with large electorates we show that ignorant voters can succeed in establishing high levels of electoral accountability in our model an incumbent politician is confronted with a large number of voters who receive fuzzy private signals about her performance a sampling effect enables the incumbent to form a precise estimate of the median voter s signal and the resulting level of accountability is as if the incumbent faced a perfectly informed social planner public information or ideological preferences can impair the beneficial impact of the sampling effect on accountability overconfidence of voters can restore the full benefit of the sampling effect

do political protests matter evidence from the tea party movement can protests cause political change or are they merely symptoms of underlying shifts in policy preferences this paper studies the effect of the tea party movement in the united states which rose to prominence through a series of rallies across the country on april 15 tax day 2009 to identify the causal effect of protests we use an instrumental variables approach that exploits variation in rainfall on the day of the coordinated rallies weather on tax day robustly predicts rally attendance and the subsequent local strength of the movement as measured by donations media coverage social networking activity and later events we show that larger rallies cause an increase in turnout in favor of the republicans in the 2010 congressional elections and increase the likelihood that incumbent democratic representatives retire incumbent policymaking is affected as well representatives respond to large protests in their district by voting more conservatively in congress finally the estimates imply significant multiplier effects for every protester republican votes increase by seven to fourteen votes together our results show that protests can build political movements that ultimately affect policy and they suggest that it is unlikely that these effects arise solely through the standard channel of private information revelation

the analytic pricing of asymmetric defaultable swaps swaps where both parties are exposed to credit risk still lack convincing pricing mechanisms this article presents a reduced form model where the event of default is related to structural characteristics of each party the cash flows submitted to credit risk are identified before the swap is priced analytical pricing formulas for interest rate and currency swaps are computed using a gaussian model for risky bonds currency swaps exhibit additional correlation risk the benefits from netting depend on the balance between exposures and market conditions in valuation we show that sources of credit risk asymmetries are also likely to impact on credit spreads

rational choice and turnout turning out to vote is the most common and important act of political participation in any democracy voting is also less well understood and explained empirically than other political acts engaged in regularly by citizens turnout however presents a special problem for rational choice theories of politics for it is taken to be the paradigmatic example of the problem of collective action in which although all may benefit from voting it is rarely in the individual s self interest to vote this paper begins by examining the problem of explaining turnout a basic form of rational choice models of turnout is developed basic in the sense that it is common to all such models this basic model is shown to be incomplete and the two most important models the calculus of voting and the minimax regret model are illustrated as alternative ways to complete this basic model along with mention of game theoretic models their strengths and weaknesses are then assessed the remainder of the paper argues that rational choice accounts of turnout are possible the first step is to argue that turnout is not an especially problematic version of the collective action problem because it is for many a low cost low expected benefit decision a strategic politicians account of turnout and campaigns is examined next a reinterpretation of the intrinsic benefits of voting is then considered and is used to examine the most important substantive problem in the turnout literature its decline these steps i argue make theories of ordinary political decisions at once both more political and more integrated into the politics of the larger system

an economic analysis of interest rate swaps interest rate swaps a financial innovation in recent years are based upon the principle of comparative advantage an interest rate swap is a useful tool for active liability management and for hedging against interest rate risk the purpose of this paper is to provide a simple economic analysis of interest rate swaps alternative uses of and the appropriate valuation procedure for interest rate swaps are described the significant increase in both the levels and the volatilities of market interest rates since the late 70 s has resulted in substantially higher interest rate risks faced by business firms and financial institutions the problem and consequences of interest rate risk exposure are particularly serious for firms in which the duration of assets does not match the duration of the liabilities for instance most financial institutions and many corporations financed long term fixed rate assets with short term floating rate liabilities such firms lose when the shortterm interest rates in the market rise unexpectedly because for given fixed rates of return on their assets the short term interest costs that they have to pay rise with the market interest rates conversely these firms gain from an unexpected decline in short term market interest rates in recent years the introduction and the development of new financial products in the capital markets such as interest rate futures interest rate options and interest rate swaps represent logical responses to the increased need to reduce firms exposure to interest rate risk

the case for nil votes voter behavior under asymmetric information in compulsory and voluntary voting systems in an informational voting environment we study the impact of an explicit nil vote option on the ballot when some voters are uninformed and face the swing voters curse we postulate a simple model of strategic voting in which voters entertain heterogeneous thresholds on legitimacy of different voting actions we predict that introducing a nil vote option reduces the number of uninformed and invalid votes increasing expected welfare in both voluntary and compulsory voting we test our model in a pen and paper laboratory experiment and find that the predictions of the model hold in the data for both voting systems

monetary and commercial policy in a two country flexible exchange rate model with perfect capital mobility abstract a two country portfolio balance model is developed in this paper in order to analyse the international transmission of monetary and commercial policy disturbances under a flexible exchange rate regime particular emphasis is placed on the role of capital mobility differences in the asset demand functions across countries and national net asset positions in determining the effects of these policies on the macroeconomic variables of the two countries both the short and the long run effects are considered with expectations assumed to be formed rationally

throwing away a billion dollars the cost of suboptimal exercise strategies in the swaptions market abstract this paper studies the costs of applying single factor exercise strategies to american swap options when the term structure is actually driven by multiple factors using a multifactor string market model of the term structure we find that even when single factor models are recalibrated to match the market at every exercise date the exercise strategies they imply can be suboptimal based on estimates of notional amounts outstanding the total present value costs of following single factor strategies could be several billion dollars these results illustrate the importance of using well specified term structure models

an empirical examination of the convexity bias in the pricing of interest rate swaps abstract this paper examines the convexity bias caused by the non linearity of payoffs in the pricing of interest rate swaps off the eurocurrency futures curve the evidence from four major currencies dm and during 1987 1996 suggests that swaps were initially being priced off the futures curve ignoring the convexity adjustment subsequently the market swap rates drifted below the rates implied by futures prices after rejecting alternative explanations we use alternative term structure models to show that the convexity bias is related to the empirically observed swap futures differential we interpret these results as evidence of mispricing of swap contracts during the early years which was eliminated over time

large electorates and decisive minorities there are many instances in which even in a democracy the political preferences held by a minority of the electorate are reflected in political outcomes it is shown that for a simple two alternative election environment characterized by costly voting and private information when the expected population is very large the alternative preferred by more expected zealous voters who have either large stakes in the outcome of the election or small costs of participating wins with high probability in any equilibrium even if the expected proportion of the entire electorate that shares that preference is arbitrarily small this is an undersirable outcome under either of two natural but very different normative criteria

get out the costly vote institutional design for greater participation institutions designed to increase turnout appeal to democratic sentiments but are highly debated as they entail two potentially countervailing eects while generating more pieces of information they may decrease the average voter s information quality we examine two commonly discussed institutions inducing participation abstention penalties used in 32 countries around the world and lotteries providing a prize to one randomly chosen participant as proposed on the 2006 arizona ballot we analyze a benchmark rational choice model in which voters vary in their information quality and participation is costly we illustrate that both institutions can improve collective outcomes though lotteries are a more eective instrument asymptotically in an array of lab experiments we empirically assess institutional performance we nd strong evidence for selective participation lab voters participate more when better informed or when institutionally induced however because subjects vote more often than the equilibrium predictions these institutions entail less welfare benets than theory prescribes lotteries do fare better than nes suggesting that they may be a useful alternative to commonly used compulsory

political identity experimental evidence on anti americanism in pakistan we identify pakistani men s willingness to pay to preserve their anti american identity using two experiments imposing clearly specified financial costs on anti american expression with minimal consequential or social considerations in two distinct studies one quarter to one third of subjects forgo payments from the u s government worth around one fifth of a day s wage to avoid an identity threatening choice anonymously checking a box indicating gratitude toward the u s government we find sensitivity to both payment size and anticipated social context when subjects anticipate that rejection will be observable by others rejection falls suggesting that for some social image can outweigh self image

a comparative welfare analysis of electoral systems with endogenous turnout i investigate the welfare properties of a broad class of electoral systems with endogenous turnout i find that the welfare ranking of electoral systems depends on the composition of the electorate if citizens have identical voting costs then all electoral systems that satisfy certain regularity properties generate the same level of welfare if voting costs are heterogeneous and the two parties are almost equally popular then majority rule mr generates the highest welfare among these systems i also analyse a model with heterogeneous and group specific costs i show that under certain conditions proportional representation dominates mr

a structural model of turnout and voting in multiple elections this paper develops a unified approach to study participation and voting in multiple elections the theoretical setting combines an uncertain voter model of turnout with a spatial model of voting behavior we apply our framework to the study of turnout and voting in u s presidential and congressional elections we structurally estimate the model using individual level data for the 2000 elections and quantify the relationships between observed individual characteristics and unobserved citizens ideological preferences information and civic duty we then use the estimated model which replicates the patterns of abstention selective abstention split ticket voting and straight ticket voting observed in the data to assess the effects of policies that may increase citizens information and sense of civic duty on their turnout and voting behavior

rational choice theory and the paradox of not voting at least since downs s 1957 seminal work an economic theory of democracy rational choice theorists have appreciated the paradox of not voting in a large election the probability that an individual vote might change the election outcome is vanishingly small if each person only votes for the purpose of influencing the election outcome then even a small cost to vote like a minor schedule conflict or mildly bad weather should dissuade anyone from voting yet it seems that many people will put up with long lines daunting registration requirements and even the threat of physical violence or arrest in order to vote given the central place of voting within political economy the lack of an adequate rational choice model of large elections with costly voting presents an obvious problem for the most part theorists have bypassed the turnout problem either by eliminating voters as strategic actors or by assuming that the decision to vote is independent of other strategic choices the problem with the first approach is that the empirical literature on voting behavior provides considerable evidence of apparently strategic behavior in primary elections there is evidence that voters condition their vote choice on the viability of candidates abramson aldrich paolino and rohde 1992 in a seminal and comprehensive study cox 1997 shows that voting patterns and election outcomes are broadly consistent with patterns of behavior predicted by strategic voting models for example under plurality rule in which the candidate with the most votes wins the election

groups in rational turnout models a model of the strategic calculus of voting that incorporates the behavior of groups is presented if candidates choose different positions positive turnout is possible in partial equilibrium and is generally larger than that without group rationality nevertheless if candidates are probability maximizers and a unique general equilibrium exists the candidates will choose equivalent positions and turnout will be zero even with group rationality but if candidates care about both policy and winning they will choose different positions and cause positive turnout this turnout will be larger than that that would occur without group rationality group rationality alone cannot explain positive turnout in a general equilibrium theory of elections it does imply larger turnout in conjunction with policy oriented candidates than would be predicted solely by individualistic rational behavior

the swing voter s curse the authors analyze two candidate elections in which some voters are uncertain about the realization of a state variable that affects the utility of all voters they demonstrate the existence of a swing voter s curse less informed indifferent voters strictly prefer to abstain rather than vote for either candidate even when voting is costless the swing voter s curse leads to the equilibrium result that a substantial fraction of the electorate will abstain even though all abstainers strictly prefer voting for one candidate over voting for another copyright 1996 by american economic association