The Political Economy of Democracy

The Political Economy of Democracy Economy The Political The Political Economy of Democracy MATERIALES DE REFLEXIÓN MATERIALES Enriqueta Aragonès Carmen Beviá Humberto Llavador Norman Schofield (Eds.) Plaza de San Nicolás, 4 48005 Bilbao España Tel.: +34 94 487 52 52 Fax: +34 94 424 46 21 Paseo de Recoletos, 10 28001 Madrid ISBN 978-84-96515-91-8 España Tel.: +34 91 374 54 00 Fax: +34 91 374 85 22 [email protected] www.fbbva.es THE POLITICAL ECONOMY OF DEMOCRACY THE POLITICAL ECONOMY OF DEMOCRACY Edited by Enriqueta Aragonès Carmen Beviá Humberto Llavador Norman Schofield The BBVA Foundation’s decision to publish this book does not imply any responsibility for its content, or for the inclusion therein of any supplementary documents or information facilitated by the authors. No part of this publication, including the cover design, may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright holder. First edition, 2009 © the authors, 2009 © of this edition: Fundación BBVA, 2009 published by: Fundación BBVA Plaza de San Nicolás, 4. 48005 Bilbao isbn: 978-84-96515-91-8 legal deposit no.: M-27485-2009 typesetting and layout: I bersaf Editores printed by: Ibersaf Industrial, S. L. Printed in Spain The books published by the BBVA Foundation are produced with 100% recycled paper made from recovered cellulose fibre (used paper) rather than virgin cellulose, in conformity with the envorinmental standards required by current legislation. The paper production process complies with European envorinmental laws and regulations and has both Nordic Swan and Blue Angel accreditation. Contents Introduction ............................................................................................... 9 1. A Citizen-Candidate Model with Private Information, Jens Großer and Thomas R. Palfrey ................................................................ 15 2. An Experimental Study of the Citizen-Candidate Model, Alexander Elbittar and Andrei Gomberg .......................................................... 31 3. Bidding for Attention and Competing for Votes in Political Debates, Gilat Levy and Ronny Razin ........................................................................ 47 4. Many Enemies, Much Honor? On the Competitiveness of Elections in Proportional Representation Systems, Matias Iaryczower and Andrea Mattozzi ................................................................................... 63 5. An Activist Model of Democracy, Norman Schofield ................................ 79 6. Authoritarian Regimes and Political Institutions, Carles Boix .............. 101 7. The Condorcet-Duverger Trade-off: Swing Voters and Voting Equilibria, Laurent Bouton and Micael Castanheira ..................................... 121 8. Why do Parties Exclude Important Issues from their Electoral Campaigns?, Josep M. Colomer and Humberto Llavador ................................ 143 9. A Brief Survey on Rational Choice Models of Polling, Dan Bernhardt, John Duggan and Francesco Squintani ........................................................... 157 10. Caucuses and Primaries under Proportional Representation, David Epstein, Massimo Morelli and Sharyn O’Halloran .................................. 171 11. Electoral Incentives, Political Risk-Taking and Policy Reform, Alessandro Lizzeri and Nicola Persico ............................................................. 193 12. The Choice of Political Institutions, Josep M. Colomer ........................... 219 13. The Returns to U.S. Congressional Seats in the mid-19th Century, Pablo Querubin and James M. Snyder, Jr. ....................................................... 225 14. Non-Ignorable Abstentions in Mexico’s Instituto Federal Electoral Rules, Guillermo Rosas and Yael Shomer ....................................................... 241 15. A Problem in Conceptualizing Party Competition over Redistributive Taxation, John E. Roemer .......................................................................... 259 16. On the Formation of Voting Blocs, Jon X. Eguia .................................. 267 17. An Automated Model of Government Formation, Enriqueta Aragonès and Pilar Dellunde ..................................................................................... 279 18. Bargaining One-Dimensional Policies and the Stability of Super Majority Rules, Daniel Cardona and Clara Ponsati ..................................... 303 19. War or Peace, Carmen Beviá and Luis C. Corchón ...................................... 317 20. Arrow’s Theorem on Single-Peaked Domains, Sean Gailmard, John W. Patty and Elizabeth Maggie Pen ........................................................ 335 Introduction There are reasons to think that a fourth wave of democratization is coming. There are now more democracies on earth than ever before. Since 1991, no fewer than 40 governments have undertaken the transition to democracy. All these newly democratizing nations and redemocratizing nations, as well as the efforts to create suprastate constitutions, especially that of the European Union, have made more relevant and necessary than ever to understand legislative procedures and alternative political constitutions. The historical formal split into the distinct studies of political sciences biased the way economists and political scientists approached many questions and placed artificial constraints on the study of many important social issues. Thus, the importance of a unified study of political economy that explores the frontiers of the interaction between politics and economics has become nowadays an unavoidable necessity. The characterization of political economy as a synthesis of fields will provide sparks and an exciting research agenda for enlightening our understanding of democracies. The workshop on “The Political Economy of Democracy”, held in Barcelo- na on 5-7 June 2008 under the sponsorship of the BBVA Foundation, brought together intellectual leaders from economics and political science to obtain a balanced understanding of common topics of analysis, such as pre-electoral maneuvering, elections, coalition building and governance, within a single comprehensive framework. Particular attention was devoted to fields of active development such as endogenous entry of candidates, politicians’ and voters’ behavior, negotiations and agreements, and political regimes. In the current political economy literature, citizen-candidate models provide a framework to address the issue of endogenous entry of candidates. Since the seminal papers of Osborne and Slivinski (1996) and Besley and Coate (1997), citizen-candidate models have typically suffered from multiple equilibria and thus, they lack clean empirical predictions. Grosser and Palfrey study a citizen-candidate model with private information about the candidates’ pre- ferred policies. Introducing private information has the advantage of provid- [ 9 ] [ 10 ] the political economy of democracy ing sharp predictions and allows the making of comparative statics. These show that as the entry costs increase or the benefits from holding office decrease, there are fewer entrants and the candidates are more extreme on average. With a different approach, Elbittar and Gomberg argue that many of the problems with testing the citizen-candidate model in the field can be easily overcome in an experimental lab. They report some preliminary results of a laboratory study of the citizen-candidate model. In particular, they observe a certain degree of excess entry even from the hopeless positions. Also in a model of endogenous candidates, Levy and Razin consider the role that money plays in elections. In their case candidates must compete and win an all pay auction in order to have the possibility of advertising their position to voters. Only advertised policies are relevant for voters, determining the agenda of the electoral debates. Extremist politicians will face a fierce competition once they advertise their position. This deters them from investing too much and allows moderates to gain an advantage. Iaryczower and Mattozzi develop a simple theoretical framework in which not only the number of candidates running for office but also the candidates’ quality are endogenous. Analyzing proportional representation electoral systems, they provide conditions under which elections would result in a positive association between the quality and the number of candidates running for office. The idea that political contenders are characterized by the “valence” or electorally perceived quality is key to Schofield’s stochastic model of elections. In his model, resources provided by activist groups may be used to enhance the contenders’ valence. This model is used to explain party positions in the Netherlands, Britain and the United States. It is suggested that the plethora of parties in polities based on proportional representation is a consequence of the low returns to activist group coalescence in such systems. The model can also be used to examine the possibility of transition from an autocratic system to democracy. Understanding autocratic regimes and how they may be transformed into democratic ones is the topic of Boix and Svolik. They explore how power is structured and exercised in different authoritarian arrangements, going beyond tyrannical rule to describe a broad range of outcomes in the universe of authoritarian regimes. They

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