Working Papers
It's the Challenger, Stupid! Elections and the Theory of Rank Order Tournaments, (with Reiner Eichenberger), CREMA Working Paper, 20-2007.
Abstract:
The theory of tournaments has been successfully applied to a wide range of economic problems but rarely to political economics. Yet, elections look very much like a contest where voters have to compare the candidates according to an ordinal ranking. We therefore make use of tournament models to analyse elections. The main difference between tournaments in a firm and election tournaments is a systematic asymmetry between the contestants: whereas the voters have plenty of information about the incumbent, they hardly know anything about the challenger. Unlike most models of political accountability which model the challenger as a standard, we focus on the specific role of the challenger and model him as a random draw with a given expected value and a variance. Consequently the ordinal ranking of the candidates contains plenty of noise, which weakens the incumbent's incentives to exert effort. After the description of the basic model, several extension of the tournament theme in politics, especially sabotage and selection, are explored.
Political Market Design, latest version: November 2008
Abstract:
Agency theory indicates the difficulties to provide politicians with strong incenives, especially the infeasibility of explicit incentives. Therefore, as Tirole (1994), Dixit (2002) and Besley (2004) concluded, career concerns have to be important in politics. However, this paper finds career concerns to be very lame, because in general politicians cannot transfer their reputation outside their constituencies. Politicians in such closed constituencies (e.g. mayors) have no outside option, whereas agents in open constituencies (e.g. city managers) do have. This idea is captured by comparing career concerns in a retrospective voting framework and a matching market between politicians and constituencies. We find that in an open constituency effort is always increasing in talent, whereas in a closed constituency talented agents exert low effort. In order to improve incentives the political market should be redesigned by opening government to outsiders.
The Third Man. An Economic Analysis of Mediation and Institutions, latest version: May 2008
Abstract:
When do outsiders matter? In distributional conflicts, bargaining
produces costly failures, especially because of asymmetric information.
By the Revelation Principle, a benevolent mediator can solve the
bargaining problem by centralising communication. Real world mediation,
however, departs from this benchmark: any distortion of communication,
any delay, any departure from the mediator-as-a-benevolent-dictator
assumption, inflicts additional transaction costs and tilts mediation
away from its second best ideal. Whereas the mediator has to insure
institutional compliance by providing information and inflicting
sanctions, the adversaries have to control the mediator's objectives.
Mediation is most successful when communication and enforcement are
separated, in order not to disturb the fragile equilibrium of trust and
leverage. Additionally, the mediator's objective function should lie
outside the initial conflict. Therefore, only outsiders can mediate -
or more generally - act as a benevolent dictator. We develop the
argument by following the narrative of the East African Community (EAC)
Mediation, which allows first-hand insights in a mediation process
based on the records of the mediator.
Strangers in Politics. The Market for Good Politicians in Medieval Italy and its Lessons for Modern Democracy,(with Reiner Eichenberger), latest version: May 2007
Abstract:
Limited political competition ultimately leads to inefficient policy setting. Still contemporary democratic institutions cannot benefit from the healing forces of market competition because candidates have to be residents and wages are politically determined. In late medieval Italy, however, the prospering city-states mostly employed foreign executive politicians, the podestàs. Their history illustrates the forces of an open market in politics. Applying the method of analytic narrative, these insights are captured by economic theory of political competition, reputation building and career concerns. The paper concludes that the combination of both, electoral and market competition, substantially improves policy setting.
Work in progress
“It's all about the Market! A Response to Ray Fisman's and Eric
Werker's Company Politics” (with Reiner Eichenberger and Mark Schelker )
“City Managers and the Effiency of Finisch Communities” (with Heikki Loikkanen and Ilkka Susiluoto)
“Making Fragile States Robust: Creating an International Market for Good Politics” (with Reiner Eichenberger).
“Federalism and the Comparison and Promotion of Politicians: A New Perspective.” (with Mark Schelker)
