governmental behavior in representative democracy a synthesis of the theoretical literature what is the impact of bureaucratic behaviors on tax rates what is preferable a bureaucrat or a partisan politician does a flypaper effect occur when lobby groups influence public policies this article tries to answer these questions by analyzing and comparing six different models of public choice 1 the median voter model 2 the leviathan model 3 the slack maximizing model 4 a general model of bureaucracy 5 the partisan politicians model and 6 a general model of lobbying among several results it is shown that the median voter s income and tax share almost always play a significant role in the design of the public good tax package even if the government does not explicitly try to maximize the median voter s utility the article also provides a synthesis of the positive analysis of the flypaper effect

jurisdiction size political participation and the allocation of resources this paper analyzes the effect of population size on politicalparticipation and allocative efficiency increasing populationis generally found to reduce political participation however since participation is not evenly spread throughout thepopulation this will have consequences for allocation namely we argue that increasing population size shifts powerto the rich we discuss the consequences for the optimal sizeof jurisdictions the size of government and the measurementof publicness

pressure groups and public expenditures the flypaper effect reconsidered a model of government budgeting is developed in which lobbying by interest groups can divert the allocation of funds away from the one preferred by the median voter the model is applied to state and local governments to show that the flypaper effect the tendency for lump sum grants to increase public expenditures by more than an equivalent increase in the community s pretax income can be explained without the customary assumption of voter fiscal illusion furthermore the model predicts variation in the extent of the flypaper effect among expenditure categories as found in previous empirical studies

employee militancy in britain 1985 1990 this paper profiles individual strike incidence and militancy in britain over the period 1985 1990 using data derived from the british social attitudes survey the approach of the study is to quantify the differential probabilities of strike activity and other forms of militant behaviour of particular groups within the population following studies from the usa in highlighting in particular the role of demographic and attitudinal influences the results indicate that demographic influences are in general the key correlates of strike incidence and militancy ceteris paribus

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

congestion function specification and the publicness of local public goods abstract this paper is about the measurement of congestion within the median voter demand framework the model of congestion traditionally used in the literature and four others are compared and tested in a median voter framework the results show that a more flexible functional form which imposes fewer a priori restrictions on the data does at least as good a job of explaining variations in local government expenditures furthermore it is shown that measured publicness of local public goods depends entirely on the a priori restrictions imposed on the congestion function

the economic and organizational basis of early united states strikes 1900 1948 this paper examines the question of whether economic factors played an important role in determining strike activity in the united states in the first half of the twentieth century a review of recent research shows one author david snyder concluding that economic factors mattered little during that period and that union organization and political variables explained much more and another p k edwards concluding the opposite a retest of these authors analyses employing ordinary least squares regression and a variety of measures suggests that snyder s position is more sound this author argues however that edwards was correct in claiming that economic factors are major determinants of the extent of unionism as well as of strike activity and thus one needs to apply a two stage least squares test of the snyder hypothesis when that is done the results show that economic variables are highly significant determinants of strike activity throughout the pre 1949 period but for the subperiod 1921 29

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

leviathan and fiscal illusion in local government overlapping jurisdictions this paper integrates twomodels of local government behavior leviathan and fiscal illusion into theframework of overlapping jurisdictions estimation of the leviathan and fiscalillusion variables without accounting forvertical effects between overlappingjurisdictions results in overestimation ofthe horizontal effects using a medianvoter model and municipal and county datawe find support for the leviathan modelusing traditional tests these effects arelargely offset however when the test isset within the context of the verticalrelationship we find that municipal percapita expenditures and county per capitaexpenditures are symmetricallycomplementary

lobbying and asymmetric information informational lobbying the use by interest groups of their alleged expertise or private information on matters of importance for policymakers in an attempt to persuade them to implement particular policies is often regarded as an important means of influence this paper analyzes this phenomenon in a game setting on the one hand the interest group is assumed to have private information which is relevant to the policymaker whilst on the other hand the policymaker is assumed to be fully aware of the strategic incentives of the interest group to mis report or conceal its private information

predictors of individual propensity to strike this article examines willingness to strike among 141 nonprofessional public school employees shortly before expiration of their contracts a questionnaire asked respondents how many days they would participate in any strike called by their union regardless of the issue or issues a strike for a low 10 wage increase and a strike for a high 24 wage increase the results suggest that the individual worker characteristics predictive of willingness to strike vary substantially among different strike goals for example it appears that militancy is related to striking for a high wage increase faithful union participation to striking in support of the union and neither to striking for a low wage increase suggesting that contrary to a common assumption not all strikes are sustained by militant workers

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

the median voter model across levels of government the median voter model provides a method of aggregating individual voter s demands to obtain community demand although higher level governments are often assumed to be less responsive to voters than lower level governments it remains an open question whether or not the median voter model which has been found to apply to the lowest tier of the federalist system extends to higher level governments we use the cox specification test to find that the ad hoc model dominates the median model for counties and states the county results are sensitive to the time periods budgetary structure and degree of urbanization

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

us presidential elections and real gdp growth 1961 2004 in this paper i show that since 1960 an electoral cycle in us output growth can both be seen by the naked eye in the raw data and confirmed by a statistical analysis that allows for rational partisan effects as well as a wide range of control variables that is controlling for multiple lags of interest rate changes inflation money growth energy prices lagged output growth government spending or its growth and temporary partisan effects the timing of elections exerts a significant influence on quarterly real gdp growth

economic policy and special interest politics a great deal of research has been done on the boundary between economics and political science in the last five to ten years this research in political economics spans many subfields such as macroeconomics trade public finance regulation rational choice politics and game theory a common denominator has been to study structural models of the political process agents behave rationally within well specified economic and political institutions where the policymaking process is formulated as an extensive form game methodologically much progress has been made relative to traditional approaches which were often based on inconsistent or irrational political and economic behaviour relying on non derived influence functions political support functions or vote functions yet the modem work has largely developed separately in each subfield without much contact with other subfields and each of the resulting literatures tends to focus on a distinct but partial aspect of the political process in this lecture i shall argue that even though the progress to date has been substantial we can gain a better understanding of policymaking in democracies by combining the insights from different strands of thinking on some economic policy issues the conflicting views both among citizens and politicians basically reduce to a single left to right dimension examples may include the politics of inflation vs unemployment capital taxation or the size of government we can think about policy issues within this domain of general interest politics as being resolved via traditional downsian electoral competition at least to a first approximation but the economic policy process also allows narrow interest groups ample opportunities to concentrate benefits to their own group at the expense of the population as a whole the resulting policy conflict is generically multi dimensional resolving it by voting alone would thus result in condorcet cycles we therefore need to go beyond the simplest electoral models to understand policy determination within this domain of special interest politics this lecture deals with special interest politics to make my point about fruitful analytical arbitrage i will stick to the same underlying policy example throughout this will be a simple model of a society where the government uses

an examination of cost subadditivity and multiproduct production in large u s banks this paper examines the subadditivity of costs for a sample of the largest commercial banks in the u s we introduce into the bank production literature the grid approach developed by evans and heckman 1984 we estimate two models of the bank cost function one where deposits are treated as outputs while in the other deposits are treated as inputs the models are estimated using the commonly used translog and the more flexible miniflex laurent viewed narrowly the findings imply that cost complementarities are not the raison d etre for multiproduct production in the largest commercial banks subadditive costs however are sufficient but not necessary for multiproduct production it is quite possible for multiproduct production to be optimal when output are produced independently levy and haber 1986 and teece 1980 1982 it is only required that inputs be shareable as opposed to joint copyright 1990 by ohio state university press

bank capitalization and cost evidence of scale economies in risk management and signaling we amend the standard cost model to account for the role of financial capital in banking the cost function is conditioned on the level of capital but we model the demand for financial capital so that it can serve as a cushion against insolvency for potentially risk averse managers and as a signal of risk for less informed outsiders scale economies are then computed without assuming that the bank chooses a level of capitalization that minimizes cost we find evidence of substantial scale economies and that bank managers are risk averse and use the level of financial capital to signal the level of risk

the median voter model in public choice theory the changing perception by public choice theorists about the relevance of the median voter model is a result of excessive extrapolation of the conclusions of theoretical models to the real world early in the 1970s the median voter model was often accepted as implying that the output produced in the public sector was what was most preferred by the median voter this claim is excessive because the median voter model is only a model of demand aggregation under majority rule and has little to say about the supply side of the public sector in the late 1970s many scholars identified several circumstances under which the model would not apply in theory but these critiques of the model were often viewed as reasons to abandon the median voter model altogether the model went from having excessive claims that made the model appear to be more powerful than it really is to excessive claims that made the model appear to be less powerful than it really is these latter claims were often in response to the earlier claims rather than to the model appropriately applied

decentralisation as an incentive scheme recent changes have introduced more decentralization in a number of traditionally centralized countries 1 in the case of france it is sometimes claimed that the 1982 1983 reform of subcentral government is of historical importance although the principles of that reform are not contested any more by the new majority elected in 1986 opinions still differ on a number of policy issues some of the issues are presented in this introductory section but the main purpose of this paper is not to expose or discuss in detail the problems of decentralization in france as argued in the second part of the introductory section the theoretical framework in which the policy issues of decentralization are usually discussed by economists is somewhat unsatisfactory in particular when applied to unitary states such as britain or france the bulk of the paper is devoted to the exploration of a different approach to decentralization it is not purported however that this approach could completely replace the more traditional one consequently when in the concluding section we return briefly to the policy issues identified here this is to be read as a preliminary attempt to evaluate the relevance of the reasoning developed in the paper

tragedy of the fiscal common fiscal stock externalities in a leviathan model of federalism the paper deals with vertical tax competition between self interested governments in a dynamic environment in a federation competition between the federal and the state governments arises when tax sources are not separated but pooled since dynamic inefficiencies will be stressed the focus is on fiscal stock externalities rather than on flow externalities the paper shows that the leviathans in a federation tax the fiscal common resource more extensively than the single leviathan in a unitary state furthermore the positive impact of political stability on public consumption of the fiscal common will be discussed

interest groups campaign contributions and probabilistic voting this essay develops a simple model to analyze the impact of campaign contributions on electoral policy decisions of candidates for office interest groups here are firms that select contributions under the assumption that candidates policies and opposing groups donations remain unaltered candidates however recognize that their policy choices affect contributions campaign contributions are used by candidates to affect policy oriented voters perceptions of candidates positions in this framework the introduction of campaign contributions may affect candidates electoral policies and if they do then they benefit surely exactly one of the two interest groups

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

electoral competition and special interest politics have fixed positions on some issues but vary their positions on others in order to attract votes and campaign contributions in this context we examine whether special interest groups are governed by an electoral motive or an influence in their campaign giving and how their contributions affect the equilibrium platforms we show that each party is induced to behave as if it were maximizing a weighted sum of the aggregate welfares of informed voters and members of special interest groups the party that is expected to win a majority of seats caters more to the special interests

bureaucracy and the divisibility of local public output the empirical results of this paper are derived from a monopoly view of local government decisionmaking in contrast to the competitive view offered by earlier researchers that our results are similar to earlier findings lends additional support to the conclusion that local output is largely private in nature other than park and recreation services there appear to be no economies in consumption for local services nor any economies of density larger cities do not appear to be more efficient than smaller cities 10 of course this result holds only for the sample of cities used here and does not rule out scale economies for communities smaller than those in our sample i e below 25 000 population

a bureaucratic theory of flypaper effects abstract one well documented pattern in local public finance is that in comparison with what is spent out of residents private income a disproportionate amount of lump sum intergovernmental aid is used to increase expenditures rather than to reduce local taxes this paper shows how a bureaucratic model of the type suggested by niskanen bureaucracy and representative government aldine atherton chicago 1971 can be used to explain this behavior an empirical test of the model using 115 small governments in michigan suggests that this bureaucratic model explains capital expenditures well while operating expenditures appear to be better explained by the standard median voter model

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

has leviathan been bound a theory of imperfectly constrained government with evidence from the states this paper develops a formal theory that combines power maximizing leviathan political parties with well defined imperfections in the political process the model implies that both parties tend to make government larger as their likelihood of electoral victory increases empirical tests on state level data confirm this prediction racing the leviathan hypothesis against alternative theories of party motivation indicates that both the leviathan and the contrasting ideologies views have some degree of validity the leviathan motive of politicians to maximize their power is a central assumption of the public choice approach to political economy this approach has been strongly attacked for underestimating the importance of competitive checks on politicians wittman 1989 1995 in particular broadly argues that electoral competition is an effective solution to whatever principalagent problem might exist between politicians and voters yet recent research in political economy dixit and londregan 1995 1996 1998 grossman and helpman 1996 casts renewed doubt on the efficiency of political markets formal models incorporating imperfections in the electoral process show that politicians have the latitude to deviate somewhat from citizen interests although politicians face constraints they retain some measure of monopoly power a conclusion consistent with the public choice literature the main difference between recent political economy and the public choice tradition arises from their assumptions about politicians objective functions the public choice approach tends to view all political parties as power maximizers whereas others see parties as either vote

is the median voter a clear cut winner comparing themedian voter theory and competing theories in explaining localgovernment spending this paper attempts to test the power of the median model againstthe respective strength of other alternate models based onredistributive political institutional and interest group theoriesin explaining the demand for public spending in new york statecounties during 1990 1980 and 1970 to execute the comparison ofthe performance of median voter model with that of each of thenonmedian voter ones various nonnested tests such as j and jatests n tilde w and encompassing tests have been employed results of the study show that although the median voter model hasa marginal edge over the rival models based on the alternativetheories it may not be relied upon solely when many otherinstitutional redistributive and interest group factors are alsorelevant for explaining public spending the results of this studydiffer from those in congleton and bennett 1995 we do not findthat interest group models are substantially weaker than the medianvoter model

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

yardstick competition in intergovernmental relationships theory and empirical predictions abstract we review yardstick competition theory as applied to fiscal choices in the intergovernmental context we show that the theory is consistent with opposite results concerning neighbouring governments fiscal behaviour and discuss some empirical implications

on the political economy of state highway expenditures some evidence of the relative performance of alternative public choice models this paper explores the extent to which the public demand for roads and or power of special interest groups determines road expenditures at the state level using an extension of the methodology developed in congleton and shughart 1990 reduced form models of median voter demand special interest group equilibria and a combined model are estimated using cross sectional state data from the united states we generally find support for the hypothesis that voting matters the pure median voter models have a better fit than the pure special interest group models moreover in our combined model we find that variables from the median voter model can not be dropped without significantly reducing the combined model s fit

testing for expense preference behavior mutual versus stock savings and loans this article investigates expense preference behavior in the savings and loan industry previous studies used an intercept test and in general concluded that managers of mutual s ls exhibit expense preference behavior i derive the necessary and sufficient conditions on cost functions for the intercept test to be valid these restrictions are rejected for the savings and loan industry stock and mutual s ls have different cost structures and both have non cobb douglas production technologies i derive a new more general test for expense preference behavior that does not require the restrictive assumptions of the intercept test the results of this test do not support earlier conclusions of managerial expense preferences

public policies pressure groups and dead weight costs abstract this paper presents a model of competition among special interest groups for political influence each active group exerts pressure to affect its taxes and subsidies where activities of different groups are related by the equality between total tax collections and total tax subsidies the dead weight costs and benefits of taxes and subsidies play a major role in our model an increase in the dead weight cost of taxation encourages pressure by taxpayers while an increase in the dead weight costs of subsidies discourages pressure by recipients various applications of the analysis are discussed