why small centrist third parties motivate policy divergence by major parties plurality based elections between two major parties or candidates sometimes feature small cen trist third parties we modify the standard two party spatial model of policy seeking parties to incorporate a centrist third party and we show that the presence of such a party even if it has no chance of winning motivates the major parties to propose policies that are much more divergent than without the third party we derive explicit formulas for party locations at a three party equilibrium and provide necessary and sufficient conditions for existence ofthat equilibrium we show that over time the major parties can be expected to shift their policies in the same direction relative to each other but in the opposite direction relative to the minor party the predictions of this model are compared with estimates of party policy locations during appropriate periods in postwar britain for the past half century a small british party first the liberals now the liberal demo crats has occupied a policy position in between the two major british parties labour and the con servatives during much of the same period the free democrats in germany have held a similar posi tion between the social democrats and the christian democrats in addition recent american presidential elections have featured the candidates john anderson in 1980 and ross perot in 1992 and 1996 who had no realistic chance of winning and who were arguably located between the democratic and republican nom inees 1 what are the policy consequences of the existence of such small centrist parties or candidates on what political institutions do these consequences depend do these consequences benefit the policy aspirations of the centrist party or do they undermine these goals under proportional representation it is well known that a small centrist party such as the free democrats in germany may hold the balance of power bargaining with each of the major players as they attempt to form governing coalitions but in a plurality based system as in britain or the united states the consequences are far

an irrational party of rational members the collision of legislators reelection quest with party success in the japan socialist party this study presents a new explanation to a puzzle regarding the reluctance of the japan socialist party jsp to moderate its hard liner marxist platform the author does so by focusing on the pref

centripetal and centrifugal incentives under different electoral systems inaseminalarticle cox 1990 suggestedthatelectoralsystemswithlargerdistrictmagnitudesprovideincentivesforparties to advocate more extreme policy positions in this article we put this proposition to the test informed by recent advances in spatial models of party competition we introduce a design that embeds the effect of electoral rules in the utility function of voters we then estimate the equilibrium location of parties as the weight voters attach to the expected distribution of seats and votes changes our model predicts that electoral rules affect large and small parties in different ways we find centripetal effects only for parties that are favorably biased by electoral rules by contrast smaller parties see their vote share decline and are pushed toward more extreme equilibrium positions evidence from 13 parliamentary democracies supports model predictions along with testing the incentives provided by electoral rules results carry implications for the strategies of vote maximizing parties and for the role of small parties in multiparty competition

do barriers to candidacy reduce political competition evidence from a bachelor s degree requirement for legislators in pakistan in the 2002 election candidates for pakistan s federal legislature had to possess at least a bachelor s degree this policy disqualified 60 out of the 207 incumbent legislators from running for election again using a difference in differences approach with panel data on all electoral constituencies in pakistan i find that this ballot access restriction does not affect political competition across all constituencies with disqualified incumbents equally stronger political competition is defined as a larger number of candidates contesting election a smaller vote share and vote margin for the winning candidate and a less concentrated candidate field as measured by a herfindahl hirschman index hhi of vote shares competition declined significantly in constituencies where the disqualified incumbent belonged to a small party and where literacy levels were lower signifying a smaller pool of substitute candidates however political competition increased in areas where the disqualified incumbent was stronger in terms of his winning vote margin

time to build delivery lags and the equilibrium pricing of capital goods this paper characterizes the behavior of investment expenditures optimal capital stocks and real interest rates in the time to build model of investment the paper derives equilibrium pricing relationships involving the prices of new and used capital and uses these relationships to obtain simple tests of the underlying investment technology the paper also demonstrates that empirical versions of the delivery lag model are misspecified because the term structure of interest rates over the time horizon for which investment yields productive capital are omitted and that the use of stock market data to measure tobin s q is inappropriate within the time to build model copyright 1993 by ohio state university press

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

time to build and aggregate fluctuations abstract this paper studies the contribution of time to build to the explanation of business cycle phenomena using a simple version of the neoclassical model the analysis shows that it is not evident that multiperiod construction is crucial to the theory of fluctuations

equilibrium strategies for final offer arbitration there is no median convergence final offer arbitration is a procedure for settling disputes between two parties in which an arbitrator chooses the final offer of the party closest to what he considers a fair settlement this procedure is modeled as a two person zero sum game of imperfect information in which the parties are assumed to know the probability distribution of the arbitrator s fair settlements and to make bids in an infinite strategy space that maximize their expected payoffs necessary and sufficient conditions for there to be local and global equilibria in pure strategies are derived and necessary conditions for mixed strategies in a particular case are found such equilibria when they exist in pure strategies represent bids which are symmetric about the median and for most common distributions are separated from one another by two or more standard deviations this finding suggests that final offer arbitration may not accomplish its avowed purpose of inducing the two parties to converge on what they perceive to be t

the impact of lead time on capital investments abstract we study equilibrium investment strategies of firms competing in stochastic dynamic market settings and facing two types of investment structures investment with significant lead time or time to build and investment without or minor lead time we investigate how investment behavior changes when investment is subject to time to build versus when it is not we characterize equilibrium investment strategies under several information structures and compare results to the social optimum we offer some new results the model predicts that controlling for demand and production and investment costs investments and outputs can be higher in progressive industries which often exhibit time to build than in fast paced industries where time to build is insignificant furthermore for both investment types investment with or without time to build we offer a novel equilibrium in which firms incrementally invest this behavior is driven by demand uncertainty and capacity constraints also expected outputs are lower than cournot outputs as firms face uncertainty moreover the amount of uncertainty has different effects over investment types

the political economy of tax coordination as a bargaining game between bureaucrats and politicians in the public finance literature the view prevails that taxcompetition among countries gives rise to an underprovision ofpublic goods and that coordinated tax increases are thereforedesirable public choice arguments in contrast suggest thattax coordination may not be in the interest of thetaxpayers citizens because imperfections of the politicalprocess political distortions may lead to a waste of taxmoney according to this view tax competition is a desirablecheck on the power to tax whereas tax coordination would onlyrelax the budget constraint of an inefficient public sector the present paper integrates the underprovision argument andthe public choice view into a common theoretical framework the government is assumed to consist of politicians andbureaucrats with diverging interests fiscal policy ismodelled as the outcome of a bargaining game between thebureaucrats and the politicians it turns out that coordinatedtax increases always raise the provision of public goods butalso increase the cost of political distortions the effect onthe welfare of the representative citizen may be positive ofnegative depending in particular on the distribution ofbargaining power between bureaucrats and politicians

globalization party positions and the median voter the authors argue that the effects of economic globalization on social democratic parties in western europe are conditional on the position of the median voter if the median is far enough to the right such parties will adopt business friendly policies because they are required to win office only when the median is relatively far to the left will globalization constrain social democratic parties forcing them to adopt policies further to the right in order to retain credibility it is on this basis the authors argue that empirical studies are misspecified unless they include an interaction between measures of globalization and the position of the median in addition to presenting formal theoretical arguments the article reports empirical findings from fifteen countries in the period from 1973 to 2002 that support the conclusion that the effects of globalization are indeed contingent on the median the authors find that the effects of globalization are significant for social democratic parties only in circumstances in which the median is relatively far to the left

equilibrium in multicandidate probabilistic spatial voting this paper presents a multicandidate spatial model of probabilistic voting in which voter utility functions contain a random element specific to each candidate the model assumes no abstentions sincere voting and the maximization of expected vote by each candidate we derive a sufficient condition for concavity of the candidate expected vote function with which the existence of equilibrium is related to the degree of voter uncertainty we show that under concavity convergent equilibrium exists at a minimum sum point at which total distances from all voter ideal points are minimized we then discuss the location of convergent equilibrium for various measures of distance in our examples computer analysis indicates that non convergent equilibria are only locally stable and disappear as voter uncertainty increases

a model of candidate location when one candidate has a valence advantage that under some fairly weak assumptions for all levels of the valence advantage the advantaged candidate chooses a more moderate position than the disadvantaged candidate empirical studies of congressional elections by fiorina 1973 and ansolabehere snyder and stewart 2001 support this result d owns 1957 seminal work presents a puzzle for scholars of u s elections why do candidates not converge to the median voter one of the best explanations is that the candidates themselves have ideological preferences as calvert 1985 and wittman 1977 1983 have shown when candidates have such preferences and they are sufficiently uncertain about the preferences of the median voter then they do not converge although they may moderate their positions from their ideal point the basic version of the calvert wittman model however does not account for another basic fact of u s elections often one of the candidates has an advantage due to a nonpolicy factor such as incumbency greater campaign funds better name recognition superior charisma superior intelligence and so on stokes has dubbed such factors valence factors and he has noted their importance in u s elections stokes 1963 1992 1 in this article i extend the basic calvert wittman model by giving one candidate a valence advantage over the other i show that if the valence characteristics of the candidates are approximately equal then when a candidate s valence advantage increases this causes her to move toward the

the impact of surplus sharing on the portfolio mix of public sector defined benefit pension plans a public choice approach the riskiness of state employee pension plan portfolios varies across states we investigate whether this variation is related to how public employees and taxpayers share actuarial surpluses of pension accounts we focus on two determinants of a plan s asset mix the relative influence of public employees to taxpayers and whether a surplus sharing contract is specified our theoretical model demonstrates that the effect of public employee influence on the asset mix is ambiguous our empirical results corroborate this complex theoretical result in our theoretical and empirical analyses if a surplus sharing rule is specified plans adopt a more aggressive investment allocation

electoral rule disproportionality and platform polarization despite common perception existing theoretical literature lacks a complete for mal argument regarding the relationship between the electoral rule disproportionality and platform polarization in this paper we build a model that incorporates the disproportionality of the electoral system in a standard downsian electoral competition setup with mainly but not necessarily purely policy motivated parties we first show that in equilibrium platform polarization is decreasing in the level of the electoral rule disproportionality we then argue that the number of parties has a positive effect on platform polarization when polarization is measured by the distance between the two most distant platforms this effect does not hold when polarization is measured by the widely used dalton index constructing a dataset covering more than 300 elections our main theoretical findings are empirically supported pointing towards the electoral rule disproportionality as a major determinant of polarization

interest rates and investment spending some empirical evidence for postwar u s producer equipment 1947 1980 the empirical evidence on the effect of interest rates on aggregate investment behavior is ambiguous the early neoclassical models of investment e g hall and jorgenson 1967 jorgenson and stephenson 1967 and the putty clay extensions e g bischoff 1969 1971 imposed various nonlinear restrictions on demand shifters and the user cost of capital some studies use the nominal interest rate in constructing user cost whereas others use a proxy for the real rate given these restrictions and different definitions of user cost of capital it is difficult to distinguish the interest rate effect nominal or real from other effects on investment behavior moreover some writers e g eisner and nadiri 1968 eisner 1978 clark 1979 concluded that interest rates are not empirically relevant the latter authors empirical findings point to the accelerator effect to be the most critical determinant of investment spending this paper explores the dynamic effect of interest rates on investment spending utilizing vector autoregressions nominal interest rate innovations have a strong and persistent effect on investment overshadowing animal spirit or own investment innovations and gnp innovations this result is robust to different ordering of the contemporary innovations by imposing cross equation restrictions we test the fama litterman weiss hypothesis that nominal yields affect investment since they provide information on future gnp this hypothesis cannot be rejected at high significant levels the strong and persistent nominal interest rate effect on investment is eliminated when we include a rational expectations predictor of future gnp in the var system the results therefore support the accelerator model of investment we acknowledge financial assistance from nsf grant no ses 84 11396 and columbia business school we are indebted to joe altonji robert b litterman laurence weiss james poturba and an anonymous referee for their valuable comments we would also like to thank participants at workshops at columbia minnesota princeton cuny nyu queens carleton and montreal for helpful suggestions

flexibility premium of emissions permits abstract investments in abatement technology are often characterised by irreversibility and significant implementation lags whereas emissions permits can be traded at any time as such abatement and emissions permit trading systems are hardly perfect substitutes we formally study the flexibility of emissions permits and propose a unified framework to rationalise the impact of both investment divestment lags and irreversibility in relation to the price of emissions permits using option pricing concepts we reformulate the technology adoption problem in terms of the technology s characteristics irreversibility and implementation lags and offer a conceptual quantification of the flexibility premium of emissions permits

proposed gasb rules show why only market valuation fully captures public pension liabilities the governmental accounting standards board has released preliminary views on how public sector pension plans should value benefit liabilities because the gasb s proposals ignore government s contingent liability to pay plan benefits should assets fall short they omit the full value of plan liabilities and contradict the gasb s own standard of interperiod equity

time to build option value and investment decisions abstract investment decisions and outlays are often made sequentially for example the rate at which construction proceeds is usually flexible and can be adjusted with the arrival of new information traditional discounted cash flow methods which treat the pattern of investment as fixed ignore this flexibility and understate the value of the project this paper uses contingent claims analysis to derive optimal decision rules and to value such investments we determine the effects of time to build opportunity cost and uncertainty on the investment decision for reasonable parameter values we show how a simple npv rule can lead to gross errors

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

time to build and investment the paper investigates the effect of the time to build technology on investment dynamics it explains the positive autocorrelation of investment by showing that investment is serially correlated once the time to build technology is taken into account the paper also shows that the time to build technology can explain a substantial portion of the variation in aggregate investment data using estimated marginal q the paper illustrates that investment responds asymmetrically to different levels of q a fact in favor of the irreversibility argument