Lesson 3: Domestic Politics and Elections

Question 1

Douglass North’s definition of institutions

Answer 1

Institutions are the constraints that structure political, economic and social interaction. They consist of both informal constraints and formal rules

Question 2

Informal constraints (North)

Answer 2

sanctions, 
taboos, 
customs, 
traditions, 
codes of conduct

Question 3

Formal rules (North)

Answer 3

constitutions,
laws,
property rights

Question 4

What do political institutions consist of and do?

Answer 4

• Electoral rules
• Parliamentary system vs. presidential system
• Direct democracy vs. representative democracy

=> Impact on outcome
=> Generate incentives

Question 5

Persson and Tabellini model

Answer 5

Image

Question 6

Roles of elections

Answer 6

1. Elections aggregate voters conflicting preferences
2. Elections aggregate dispersed information about the correct political decision
3. Elections help to select good politicians → Prevent adverse selection
4. Elections prevent elected politicians with reelection concern form doing bad things
   → Prevent moral hazard

Question 7

Assumptions on the roles of elections

Answer 7

Idealized situation:

• Perfect information
• Rational individuals
• By aggregating preferences you reach an efficient outcome

Question 8

Drawbacks of elections

Answer 8

1. Politicians may choose actions that are popular but not optimal for socieity
2. Politicians may choose actions with short time horizons
3. Majority elections may lead to a constant discrimination against minorities

Question 9

Drawbacks of elections

Answer 9

1. Politicians may choose actions that are popular but not optimal for socieity

Example: Re-elections and government fiscal policy

2. Politicians may choose actions with short time horizons
3. Majority elections may lead to discrimination against minorities

Question 10

How do institutions relate to each other?

Answer 10

Horizontal separation of powers

Vertical separation of powers
• Central state
• Federal units

Constitutions define the relationship between these institutions

Question 11

Horizontal separation of powers

Answer 11

• Legislative
• Executive
• Judiciary
• (People)

Question 12

Endogeneity of institutions

Answer 12

Strategic interaction between actors with nonidentical preferences may affect the design of institutions

Political actors know that institutions may change their payoffs

Question 13

Acemoglu’s notion

Answer 13

Acemoglu: In a democracy, the payoffs are higher for the people, whereas leaders have a lower payoff

Question 14

Chile 1958 example

Baland & Robinson article

Answer 14

Chile: Previously every party produced their own ballots, so it was obvious who people were voting for.

After 1958 it was changed and people could use whatever ballot they wanted to

Hypothesis: Before secret ballots, landlords controlled political behavior of workers (strong patron-client relation) → landlords forced workers to vote right-wing whereas workers preferences would be left-wing

Result: After secret ballot was introduced, proportion of inquilinos (renters) who voted right-wing fell

Question 15

Chile 1958 example

Baland & Robinson article

Answer 15

Chile: Previously every party produced their own ballots, so it was obvious who people were voting for.

After 1958 it was changed and people could use whatever ballot they wanted to

Hypothesis: Before secret ballots, landlords controlled political behavior of workers (strong patron-client relation) → landlords forced workers to vote right-wing whereas workers preferences would be left-wing

Result: After secret ballot was introduced, proportion of inquilinos (renters) who voted right-wing fell

Question 16

CH naturalization decisions example

Answer 16

• Effect of institutional settings on naturalization decisions
• Direct vs appointed = subjective vs objective
• Representative: depending on ruling party
• Direct vs representative/appointed: no consequences for voters vs accountability for representatives

o Not only institutions determine the outcome, but also the setting (e.g. of urban municipalities tending to be more representative & liberal vs rural that tend to vote direct, more conservative)

Question 17

Hangartner and Hainmueller (2012)

Answer 17

Explore the effects
of different institutional settings on naturalization
decisions:
• Direct democracy: All eligible citizens can vote on the naturalization of persons
• Representative democracy: The executive or legislative branch decides on naturalization
• Appointed commission: Decision is taken by an appointed naturalization commission.

Institutional constraint: Federal Court rules out direct democracy as a decision-making mode in 2003

Result: Highest naturalization rate with an appointed commission, while direct democracy was the lowest.

Representative democracy in between

Question 18

Hangartner and Hainmueller (2012)

Answer 18

Explore the effects
of different institutional settings on naturalization
decisions:
• Direct democracy: All eligible citizens can vote on the naturalization of persons
• Representative democracy: The executive or legislative branch decides on naturalization
• Appointed commission: Decision is taken by an appointed naturalization commission.

Institutional constraint: Federal Court rules out direct democracy as a decision-making mode in 2003

Result: Highest naturalization rate with an appointed commission, while direct democracy was the lowest.

Representative democracy in between

Question 19

RQ:

1) What are domestic institutions?

Answer 19

Humanly devised constraints that structure political, economic and social interaction (Douglass North definition).

Question 20

RQ:

2) What is the role of elections?

Answer 20

• Aggregate different voter preferences and dispersed information, prevent moral hazard, prevent adverse selection.

Question 21

RQ:

3) How do institutions affect policy?

Answer 21

• Yes, they shape the behavior of voters and politicians.

Question 22

RQ:

3) How do institutions affect policy?

Answer 22

They shape the behavior of voters and politicians.

Question 23

Environmental policy making and elections example

Answer 23

List & Sturm (2006) paper

• Politicians maximize their vote share when taking the position of the median voter (Downs 1957)

Policy-making is multidimensional:

• Frontline policy issues
• Secondary policy issues
• Most voters are unaffected by secondary policy, but some may be substantially affected (heterogeneity of voter preferences)
• Politicians have an incentive not to take the median position in issues to capture voters affected by secondary policies
• Lame ducks: No incentive of re-election, so there’s no incentive to cater to secondary issues

Question 24

Results of the List & Sturm (2006) paper

Answer 24

• 1st line (lame duck and brown state): Increased envir. spending relatively to prior term
• 2nd line (lame duck and green state): Decrease envir. spending
• 3rd line (lame duck and margin and brown): High margin = less environ. spending
• 4th line (lame duck, margin and green state): Increase in spending

Question 25

List & Sturm (2006) hypotheses

Answer 25

1. Term limits generate differences in secondary policy
2. Effect of term limits depends on composition of electorate
3. Political competition should enhance the effect of term limits

Question 26

List & Sturm (2006) hypotheses

Answer 26

1. Term limits generate differences in secondary policy
2. Effect of term limits depends on composition of electorate
3. Political competition should enhance the effect of term limits