an empirical investigation of coalitional bargaining procedures abstract models of government formation processes in multi party democracies are usually highly sensitive to the rules that govern the selection of formateurs i e the parties selected to propose a potential government the theoretical literature has focused on two selection rules selection proportional to seat share and selection in order of seat share in this paper we use a new data set on government formations in 11 parliamentary democracies to empirically assess which selection rule most closely approximates the data we find that while there is little empirical support for selection in order of seat share proportional selection fits the data well however we also find that a simple alternative that combines the insights of the two selection rules outperforms both of them in their ability to explain the data

voting equilibria under proportional representation this article studies the consequences of strategic voting by outcome oriented voters in elections under proportional representation pr i develop a model of elections under pr in which voters choose among an arbitrary finite number of parties and the policy outcome is determined in a postelection bargaining stage i use a new solution concept robust equilibrium which greatly mitigates the well known problem of indeterminate predictions in multicandidate competition applying the equilibrium concept to the model i find that pr promotes representation of small parties in general even when voters are strategic however the median voter plays a critical role in shaping policy outcomes which reflects the majoritarian nature of parliamentary policy making rules thus pr may not be incompatible with the majoritarian vision of representative democracy if voters main concern is policy outcomes

monetary policy and liquid government debt abstract we examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority a scenario increasingly relevant for many developed economies today central bank control over the long run inflation rate depends on whether fiscal policy is ricardian or non ricardian the optimal monetary policy follows a generalized friedman rule that eliminates the liquidity premium on scarce treasury debt we derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the taylor principle in addition non ricardian regimes may suffer from multiplicity of steady states when the government runs persistent deficits

common agency with rational expectations theory and application to a monetary union we extend the theory of common agency to the situation where the principals payoffs are affected by their ex ante expectations of the agent s ex post choice we show how the usual truthful schedules must be modified to account for the rational expectations constraint we apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts we examine how the outcomes depend on different delegated objectives of the bank and find that some often advocated rules create an excessive deflationary bias

three party competition in parliamentary democracy with proportional representation this article studies the long run dynamics of policy choices government formations and voting behavior under a parliamentary constitution and proportional representation i develop an infinite period game where in each period voters participate in a proportional representation election and three farsighted parties bargain over one dimensional policy programs and government positions the model incorporates the interaction between elections and coalition bargaining which is the essence of politics in most parliamentary systems as well as a dynamic environment of policymaking a policy once implemented remains in effect until another replaces it i find a markov perfect equilibrium in which 1 there is no majority party in any election 2 election results converge over time to a stable vote distribution 3 policy outcomes change over time but eventually stay within a set of three points 4 minimal winning coalitions and minority governments are formed with positive probability and alternate over time

the differential regional effects of monetary policy this paper examines whether monetary policy has similar effects across regions in the united states impulse response functions from an estimated structural vector autoregression reveal a core of regions new england mideast plains southeast and the far west that respond to monetary policy changes in ways that closely approximate the u s average response of the three noncore regions one great lakes is noticeably more sensitive to monetary policy changes and two southwest and rocky mountains are found to be much less sensitive a state level version of the model is estimated and used to provide evidence on the channels for monetary policy

blame game politics in a coalition government abstract delays in the adoption of reforms is an important question in political economics this paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision making process nor politicians preferences for a reform we show that a coalition member who favors a reform may nonetheless choose to veto its adoption thus delaying it until after the next election and let his coalition partners share the blame for the non adoption we refer to this strategy as blame game politics we then identify three reasons for a politician to play the blame game one is to make an issue salient in the next election a second reason is to avoid a split in his electorate which is accomplished by hiding his stance on an issue a third reason is to enhance bargaining power during the formation of the next government

the fiscal theory of the price level in a world of low interest rates abstract a central equation for the fiscal theory of the price level ftpl is the government budget constraint or government valuation equation which equates the real value of government debt to the present value of fiscal surpluses in the past decade the governments of most developed economies have paid very low interest rates and there are many other periods in the past in which this has been the case in this paper we revisit the implications of the ftpl in a world where the rate of return on government debt may be below the growth rate of the economy considering different sources for the low returns dynamic inefficiency the liquidity premium of government debt or its favorable risk profile this article is part of a special issue entitled fiscal and monetary policies

money credit and banking in monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained this problem creates a role for financial intermediaries such as banks who accept nominal deposits and make nominal loans in general financial intermediation improves the allocation the gains in welfare come from the payment of interest on deposits and not from relaxing borrowers liquidity constraints we also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving

on the efficiency of equilibria in a legislative bargaining model with particularistic and collective goods this study analyzes the efficiency of equilibria in a multilateral bargaining game in which a legislature divides its budget among collective and particularistic goods in order to disentangle the causes of inefficiency we extend the model of volden and wiseman am polit sci rev 101 79 92 2007 by considering quasi linear utility functions and consensus requirements ranging from simple majority to unanimity although unanimous agreements can be reached under weaker consensus requirements we show that pareto inefficiency is associated with non unanimous consent we also study how i the endogenous selection of the legislature s size or ii a sequential choice of collective and particularistic spending eliminates or attenuates the inefficiency problem

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

optimal money and debt management liquidity provision vs tax smoothing abstract conventional wisdom on public debt management says that liquidity demand should be satiated and that tax rates should be smoothed conflicts between the two can arise when government bonds provide liquidity smoothing taxes causes greater variability in fiscal balances and therefore in the supply of government liabilities when prices are flexible and can jump to absorb fiscal shocks the tradeoff between liquidity provision and tax smoothing is eased when they conflict optimal policy subordinates tax smoothing to satiating liquidity demand when price fluctuations impose real costs conflicts necessarily arise and optimal policy gives primacy to neither goal

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

elections governments and parliaments in proportional representation systems this paper presents a theory of parliamentary systems with a proportional representation electoral system a formateur selected based on party representation in parliament and parties that cannot commit to the policies they will implement once in government government formation involves efficient proto coalition bargaining and elections yield unique strong nash equilibrium outcomes depending on the status quo minimal majority surplus or consensus governments can form if parties and voters are myopic and the status quo is subject to shocks consensus governments and centrist policies occur only in a crisis otherwise governments are minimal winning and policies reflect only the preferences of the government parties

monetary policy in a heterogeneous monetary union the australian experience australia is a monetary union with strong regional specialization manufacturing and service industries are located in the population centres on the south eastern seaboard and mining and pastoral activities take place in the interior and north of the continent monetary policy affects the interior and north more strongly than the south eastern seaboard because australian primary goods are mostly exported and the exchange rate provides the main transmission channel for monetary policy the reserve bank of australia must consider the economic interests of the interior and north and the south eastern seaboard since monetary policy cannot differentiate between regions there is a need for interregional macroeconomic risk sharing

a dynamic duverger s law electoral systems promote strategic voting and affect party systems duverger les partis politiques 1951 proposed that plurality rule leads to bi partyism and proportional representation leads to multi partyism we show that in a dynamic setting these static effects also lead to a higher option value for existing minor parties under plurality rule so their incentive to exit the party system is mitigated by their future benefits from continued participation the predictions of our model are consistent with multiple cross sectional predictions on the comparative number of parties under plurality rule and proportional representation in particular there could be more parties under plurality rule than under proportional representation at any point in time however our model makes a unique time series prediction the number of parties under plurality rule should be less variable than under proportional representation we provide extensive empirical evidence in support of these results

power brokers middlemen in legislative bargaining abstract we study a model of decentralized legislative bargaining over public decisions with transfers we establish the emergence of middlemen in legislative bargaining as a robust equilibrium phenomenon we show that legislative intermediation can impact policy outcomes and can be inefficient to fulfill this role the middleman s policy preferences and bargaining position must be such that its role of intermediary is credible but the political middleman must also directly benefit from policy change the results highlight fundamental differences between the role of intermediaries in politics and exchange economies

a structural model of government formation in this paper we estimate a bargaining model of government formation in parliamentary democracies we use the estimated structural model to conduct constitutional experiments aimed at evaluating the impact of institutional features of the political environment on the duration of the government formation process the type of coalitions that form and their relative stability

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

exchange rate volatility exchange rate regime and trade volume evidence from the uk us export function 1889 1999 abstract this paper investigated the impact of exchange rate volatility and exchange rate regime on the british exports to the united states using data for the period 1889 1999 the empirical findings suggest that neither exchange rate volatility nor the different exchange rate regimes that spanned the last century had an effect on export volume

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

how well does the mundell fleming model fit australian data since the collapse of bretton woods australian time series for the nominal interest rate real output the nominal exchange rate prices and nominal money since 1973 are characterized by a vector autoregressive process driven by five exogenous disturbances those disturbances are identified so that they can be interpreted as the five main sources of fluctuations found in the mundell fleming model of a small open economy under flexible exchange rates namely world interest rate aggregate supply is money supply and money demand shocks the dynamic responses of the estimated model to the structural shocks are analysed and shown to match most of the predictions of the mundell fleming model

spatial models of legislative effectiveness spatial models of policymaking have evolved from the median voter theorem through the inclusion of institutional considerations such as political parties committees and various voting and amendment rules such models however implicitly assume that no policy is more effective than another at solving public policy problems and that all proposers are equally capable of advancing proposals we relax these assumptions by modeling proposal quality and the effort needed to make better proposals the resulting legislative effectiveness model lem offers three main benefits first it can better account for policy changes based on the effectiveness or popularity of the status quo changing our understanding of how to overcome gridlock in polarized legislatures second it generalizes canonical models of legislative politics such as median voter setter negative agenda setting and pivotal politics models all of which emerge as special cases within the lem third the lem offers significant new empirical predictions some of which we initially test and find support for within the u s congress

stable governments and the allocation of policy portfolios different members of coalition governments typically have responsibility for different aspects or dimensions of policy such responsibilities are allocated as portfolios to government members given a distribution of such portfolios final government policy is derived as the accumulation of individual members decisions in regard to their respective responsibilities we develop a portfolio allocation model of government formation and policy decision in multiparty legislatures in particular we focus on stable portfolio allocations where a stable allocation is one that yields a policy that no legislative coalition is willing or able to overturn several notions of stability are considered and related to the usual concept of the core among the results are that although stable allocations are not guaranteed such allocations can exist with minority governments and that final policy outcomes associated with stable governments need not be centrist

asset prices and liquidity in an exchange economy i develop an asset pricing model in which financial assets are valued for their liquidity the extent to which they are useful in facilitating exchange as well as for being claims to streams of consumption goods the implications for average asset returns the equity premium puzzle and the risk free rate puzzle are explored in a version of the model that nests the work of mehra and prescott 1985

electoral systems and public spending we study the effects of electoral institutions on the size and composition of public expenditure in oecd and latin american countries we emphasize the distinction between purchases of goods and services which are easier to target geographically and transfers which are easier to target across social groups we present a theoretical model in which voters anticipating government policymaking under different electoral systems have an incentive to elect representatives more prone to transfer public good spending in proportional majoritarian systems the model also predicts higher total primary spending in proportional majoritarian systems when the share of transfer spending is high low after dee ning rigorous measures of proportionality to be used in the empirical investigation we e nd considerable support for our predictions

coalition governments and comparative constitutional design abstract in this paper we present a structural approach to the study of government formation in multi party parliamentary democracies the approach is based on the estimation of a stochastic bargaining model which we use to investigate the effects of specific institutional features of parliamentary democracy on the formation and dissolution of coalition governments we illustrate our methodology by presenting the results of two counterfactual experiments of comparative constitutional design

theoretical comparisons of electoral systems abstract elements of an economic theory of political institutions are introduced a variety of electoral systems are reviewed cox s threshold is shown to measure incentives for diversity and specialization of candidates positions when the number of serious candidates is given duverger s law and its generalizations are discussed to predict the number of serious candidates duverger s law is interpreted as a statement about electoral barriers to entry and this idea is linked to the question of the effectiveness of democratic competition as a deterrent to political corruption the impact of post electoral bargaining on party structure in presidential and parliamentary systems is discussed

pre electoral commitments and government formation recent studies show that pre electoral commitments and the ideological distance between parties influence government formation but do pre electoral pacts or rejections of party combinations really have an independent impact on the outcome of the government formation game which policy areas matter when parties agree to build a coalition this paper addresses these questions by applying a dataset that includes information on preferred rejected coalition partners and the policy area specific programmatic heterogeneity of all potential coalitions the results show that pre electoral commitments have a significant impact on government formation after controlling for endogeneity problems there is also evidence that not only diversity in economic issues determines the partisan composition of governments

redistribution pork and elections why might citizens vote against redistributive policies from which they would seem to benefit many scholars focus on wedge issues such as religion or race but another explanation might be geographically based patronage or pork we examine the tension between redistribution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide the dollar environments the model yields a unique equilibrium that describes the circumstances under which poor voters support right wing parties that favor low taxes and redistribution and under which rich voters support left wing parties that favor high taxes and redistribution the model suggests that one reason standard tax and transfer models of redistribution often do not capture empirical reality is that redistributive transfers are a less efficient tool for attracting votes than are more targeted policy programs the model also underlines the central importance of party discipline during legislative bargaining in shaping the importance of redistribution in voter behavior and it describes why right wing parties should have an advantage over left wing ones in majoritarian systems

do asymmetries matter for european monetary policy in this paper we analyze the impact of economic and institutional ecb decision rules asymmetries on the effectiveness of monetary policy in euroland we consider a model where asymmetric shocks and divergent propagation of shocks in output and inflation are potential causes of tensions within the ecb concerning the conduct of common monetary interest rate policy welfare implications of the alternative decision procedures are discussed

money as stock abstract the fiscal theory determines the price level from the value of nominal government debt as a claim to government primary surpluses just as private stock is valued as a claim to corporate profits valuation equations are not constraints so this theory does not mistreat the government s intertemporal budget constraint i anchor the analysis in a simple cash in advance model when money demand falls to zero i show that the price level can still be determined by the government debt valuation equation

commitment deference and legislative instutions j nformational theories of legislative institutions have demonstrated the potential collective gains from committee specialization due to the use of restrictive amendment procedures for these 5 benefits to be realized however the floor majority must overcome a commitment problem i demonstrate that in a multistage game majority rule combined with the fact that generations of legislators overlap allows the legislature to solve the commitment problem and to sustain legislative norms and institutions even if legislators are finitely lived the model suggests that rather than restrictive amendment procedures it is the committee s expectation of floor deference that sustains committee specialization as a consequence legislative norms may collapse due to an unexpected influx of new members even if the distribution of preferences in the legislature does not change finally i discuss consequences for a comparative study of legislative institutions

land and power theory and evidence from chile many employment relationships concede rents to workers depending on the political institutions the presence of such rents allows employers to use the threat of withdrawing them to control their workers political behavior such as their votes in the absence of secret ballot we examine the effects of the introduction of the secret ballot in chile in 1958 on voting behavior before the reforms localities with more pervasive patron client relationships tended to exhibit a much stronger support for the right wing parties traditionally associ ated with the landed oligarchy after the reform however this difference across localities completely disappeared jel d72 n46 o13 o15 o17

voter heterogeneity and political corruption abstract we show that policies that eliminate corruption can depart from socially desirable policies and this inefficiency can be large enough to allow corruption to live on political competition between an honest welfare maximiser and corrupt politicians is studied in our model the corrupt politician is at a distinct disadvantage there is no asymmetric information no voter bias and voters are fully rational yet corruption cannot be eliminated when voters have heterogeneous preferences

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

is a monetary union feasible for east asia the empirical suitability of the east asian economies for potential monetary integration is assessed the structural vector autoregression var method is employed to identify the underlying shocks using a three variable var model across the east asian economies the estimates of the eec are used as a benchmark to compare the size of the underlying shocks and the speed of adjustment to shocks in both regions to determine the feasibility of forming an optimum currency area oca in east asia the empirical results do not display strong support for forming an oca in the east asian region the results do imply however that some small subregions are potential candidates for ocas since their disturbances are correlated and small and these economies adjust rapidly to shocks

a theory of divided government this paper extends the spatial theory of voting to an institutional structure in which policy choices depend upon not only the executive but also the composition of the legislature voters have incentives to be strategic since policy reflects the outcome of a simultaneous election of the legislature and the executive and since the legislature s impact on policy depends upon relative plurality to analyze equilibrium in this game between voters we apply coalition proof type refinements the model has several testable implications which are consistent with voting behavior in the united states for instance the model predicts a split tickets where some voters vote for one party for president and the other for congress b for some parameter values a divided government with different parties controlling the executive and the majority of the legislature and c the midterm electoral cycle with the party holding the presidency always losing votes in midterm congressional elections

the causal effect of coalition governments on fiscal policies evidence from a regression kink design proportional election systems are widespread across countries and often lead to coalition governments this creates interest in how the form of government single party or coalition governments causally influences fiscal policies it is difficult to estimate this causal effect empirically because the form of government is not randomly assigned to political units i overcome this problem by using a regression kink design which exploits that there is a slope change in the treatment probability at the 50 vote share of the strongest party this method is applied to a large panel data set of german local governments i find that contrary to the theoretical prediction coalition governments significantly decrease expenditures

the legislative dynamics of political decentralization in parliamentary democracies we investigate how particular configurations of national parliaments affect the dynamics of political decentralization in parliamentary democracies recent research has emphasized the impact of structural determinants on levels of decentralization across countries however we argue that decentralization processes are endogenous to legislative bargaining by political parties our main hypothesis is that ceteris paribus the greater the legislative bargaining power of parties with decentralization demands the more likely decentralization reforms are to occur for that purpose we calculate an index of the parliamentary salience of decentralization that reflects the distribution of parties preferences for decentralization weighted by their bargaining power we test our hypotheses with dynamic models for 19 parliamentary democracies using comparative manifesto project data and the regional authority index we demonstrate that the dynamics of decentralization are crucially shaped by the configuration of na

a model of farsighted voting i present a new method of interpreting voter preferences in settings where policy remains in effect until replaced by new legislation in such settings voters consider not only the utility they receive from a given policy today but also the utility they will receive from policies likely to replace that policy in the future the model can be used to characterize both long term preferences and distributions over policy outcomes in situations where policy is ongoing and voters are farsighted

can the fiscal authority constrain the central bank abstract the fiscal theory of the price level ftpl suggests in its extreme form that the fiscal authority always constrains central bank behavior a fisherian model is used to show that fiscal policy can be irrelevant for the central bank and that a central bank can act independently even when constrained to monetize the government debt in a model with secured credit and scarce collateral which can explain low real interest rates the valuation of consolidated government debt needs to account for inefficiency and liquidity premia the fiscal authority may wish to tolerate inefficiency so as to finance public goods provision this article is part of a special issue entitled fiscal and monetary policies

liquidity premiums on government debt and the fiscal theory of the price level we construct a dynamic general equilibrium model where agents use nominal government bonds as collateral in secured lending arrangements if the collateral constraint binds agents price in a liquidity premium on bonds that lowers the real rate on bonds in equilibrium the price level is determined according to the fiscal theory of the price level however the market value of government debt exceeds its fundamental value we then examine the dynamic properties of the model and show that the market value of the government debt can fluctuate even though there are no changes to current or future taxes or spending the price dynamics are driven solely by the liquidity premium on the debt

coalition theory and its applications a survey we survey some of the major advances in coalition theory in recent years we then look at the recent applications of the theory in the area of political economy and touch upon some important theoretical and applied open questions in the field

electoral rules strategic entry and polarization abstract how does electoral rule disproportionality affect the structure of the party system i e the number and the policy platforms of the competing parties by studying a model where both party entry and platform choice are endogenous we are able to provide a unified theory an increasing electoral rule disproportionality exhibits a a first order negative effect on platform polarization b a second order negative effect on the number of parties as polarization decreases centrist parties are squeezed between other contenders and prefer not to enter and c an additional third order negative effect on polarization via the reduction of the number of parties we then conduct a laboratory experiment and strongly confirm the theoretical predictions of the model

are moderates better representatives than extremists a theory of indirect representation few if any elected representatives are capable of unilaterally implementing their platforms rather they choose between options generated by other actors and or external events we present a theory of voters preferences over representatives who will cast votes on their behalf and show that in this setting voters preferences over candidates platforms will not look like voters preferences over policies we demonstrate that these induced preferences for representation tend to favor more extreme representatives and we present two models of electoral competition in which induced preferences over representatives lead to elite polarization

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

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

the political economy of dynamic elections accountability commitment and responsiveness we survey the literature on dynamic elections in the traditional settings of spatial preferences and rent seeking under perfect and imperfect monitoring of politicians we define stationary electoral equilibrium which encompasses notions used by barro 1973 ferejohn 1986 banks and sundaram 1998 and others we show that repeated elections mitigate the commitment problems of politicians and voters and that a responsive democracy result holds under general conditions term limits however attenuate the responsiveness finding we also touch on related applied work and we point to areas for fruitful future research including the connection between dynamic models of politics and economics

dynamics cycles and sunspot equilibria in genuinely dynamic fundamentally disaggregative models of money abstract this paper pursues a line of cass and shell who advocate monetary models that are genuinely dynamic and fundamentally disaggregative and incorporate diversity among households and variety among commodities recent search theoretic models fit this description we show that like overlapping generations models search models generate interesting dynamic equilibria including cycles chaos and sunspot equilibria this helps us understand how alternative models are related and lends support to the notion that endogenous dynamics and uncertainty matter perhaps especially in monetary economies we also suggest such equilibria in search models may be more empirically relevant than in some other models

interest rate rules and price determinacy the role of transactions services of bonds abstract interest rate rules have been associated with price indeterminacy when they do not respond aggressively enough to inflation price indeterminacy is typically associated with indeterminacy of real bond balances suggesting that the missing element is a meaningful role for government bonds we assume that government bonds provide arbitrarily small transactions services and show that this can dramatically change the local and global determinacy conditions in particular the specification of fiscal policy affects the aggressiveness with which monetary policy must respond to inflation to deliver local determinacy a range of passive monetary policies even an interest rate peg may yield determinacy

strategic delegation and voting rules abstract the selection of political representatives depends on the political system principals such as voters or districts may benefit by strategically electing representatives different from themselves while a status quo biased delegate may be a better negotiator an enthusiastic representative has a better chance of being included in the majority coalition a larger majority requirement leads to conservative delegation and hence a status quo bias a poor minority protection does the opposite through strategic delegation the political system also determines whether centralization or decentralization is beneficial

vote trading in power sharing systems a laboratory investigation in theory decentralized vote trading in power sharing systems promotes a efficiency by assigning greater decision making power to individuals that care a lot about the election s outcome and b dispersion of benefits since even individuals that have little interest about the electoral result can profit by selling their votes we experimentally test these intuitions in the laboratory and find that indeed allowing real subjects to trade votes for money in such systems increases collective welfare and substantially redistributes it towards those that are less concerned about the election importantly these findings hold true under alternative trading institutions thus reinforcing their empirical relevance

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

outside versus inside bonds a modigliani miller type result for liquidity constrained economies when agents are liquidity constrained two options exist sell assets or borrow we compare the allocations arising in two economies in one agents can sell government outside bonds and in the other they can borrow by issuing inside bonds all transactions are voluntary implying no taxation or forced redemption of private debt we show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true however the optimal policy in each economy makes the allocations equivalent

bargaining in legislatures over particularistic and collective goods we develop a bargaining model in which a legislature divides a budget among particularistic and collective goods by incorporating both private and public goods in a unified model we uncover nonmonotonic relationships between legislative preferences for collective spending and the amount of the budget actually allocated to collective goods put simply policy proposers can exploit coalition partners strong preferences for public goods to actually provide fewer public goods in equilibrium while directing more private goods to themselves these results explain why policy reforms to limit special interest spending often fail this unified model also sheds new light on when legislatures prefer open or closed amendment rules and when coalitions take different sizes and shapes

voting in legislative elections under plurality rule conventional models of single district plurality elections show that with three parties anything can happen extreme policies can win regardless of voter preferences i show that when there are multiple district elections for a legislature we get back to a world where the median voter matters an extreme policy will generally only come about if it is preferred by the median voter in a majority of districts while the existence of a centrist party can lead to moderate outcomes even if the party itself wins few seats furthermore i show that while single district elections always have misaligned voting i e some voters do not vote for their preferred choice equilibria of the legislative election exist with no misaligned voting in any district finally i show that when parties are impatient a xed rule on how legislative bargaining occurs will lead to more coalition governments while uncertainty will favour single party governments