Ivo Bischoff

Determinants of the Increase in the Number of Interest Groups in Western Democracies: Theoretical Considerations and Evidence from 21 OECD Countries

Mancur Olsons theory of institutionalsclerosis is based on the notion that thenumber of interest groups within a countryincreases with the duration of itspolitical stability. The following paperargues that the increase in the number ofinterest groups over time could also be aconcomitant of economic development.Theoretically, both explanations provetenable. An empirical cross-sectionalregression analysis using data from 21OECD countries finds no evidence for asignificant impact of the duration ofpolitical stability on the number ofinterest groups. A significantly positiveeffect is, however, reported for the degreeof economic development.

Choosing from the Reform Menu Card - Individual Determinants of Labour Market Policy Preferences

This contribution empirically explores the drivers of labour market reform acceptance for the individual level in Germany. For that purpose we make use of the representative German General Social Survey (ALLBUS). This survey offers data to which extent individuals support benefit cuts, longer working years, cutting subsidies to declining industries, phasing out of employment programmes or a liberalisation of employment protection. Our theoretical considerations suggest that self-interest, information, fairness judgements, economic beliefs and other individual factors such as socialisation under the communist regime in the former German Democratic Republic drive individual reform preferences. Our empirical results support this notion: While we find self-interest to be an important driving force, our results show that a number of factors well beyond the narrow scope of self-interest strongly shape individual reform preferences.

Individual Determinants of Social Fairness Assessments - The Case of Germany

In this contribution we study the determinants of how individuals assess the social fairness of a given income distribution. We propose an analytical framework distinguishing between potential impact factors related to the following fields: first fairness preferences, second beliefs on the sources of economic success and the functioning of democracy and third selfinterest. We test this framework on representative survey data for Germany for the years 1991, 2000 and 2004. Our results indicate that self-interest, beliefs and fairness preferences jointly shape fairness assessments. In addition, a number of personal characteristics are found to be important: Compared to their western fellow citizens, people born in GDR have a more critical view at social fairness. A particularly strong impact is related to the belief on the functioning of the democratic system. This points an important role of procedural fairness for the acceptance of a given distribution.

Vertical Grants and Local Public Efficiency

The existing empirical literature on the impact of vertical grants on local public-sector efficiency yields mixed results. Given the fact that vertical financial equalization systems often reduce differences in fiscal capacity, we argue that empirical studies based on cross-sectional data may yield a positive relationship between grants and efficiency of public service production even when the underlying causal effect is not. We provide a simple illustrative theoretical model to show the logic of our argument and illustrate its relevance by an empirical case study for the German state of Saxony-Anhalt. We show that our main argument of an inference-disturbing effect applies to those existing studies that are more optimistic about the impact of vertical grants. Finally, we argue that it may disturb the inference drawn from studies in a number of other countries where vertical grants—intended or not—concentrate in fiscally weak municipalities.

Gesamtwirtschaftliche Transaktionskosten und wirtschaftliches Wachstum / Social Transaction Costs and Economic Growth

Zusammenfassung Die Bedeutung von Transaktionskosten für die wirtschaftliche Entwicklung war in den letzten Jahrzehnten Gegenstand zahlreicher ökonomischer Forschungsansätze. Nur ein sehr kleiner Teil davon wählte eine empirische Herangehensweise. Dieser Aufsatz beginnt mit einem kurzen Überblick über diese wenigen empirischen Arbeiten. Dabei sticht insbesondere die Kontroverse um die Frage ins Auge, ob der beobachtete Anstieg des Anteils der Transaktionskosten an der Wertschöpfung in verschiedenen Volkswirtschaften langfristig eine Wachstumsbremse darstellt. Aufbauend auf der Methode von Reichhardt (1995) wird die Entwicklung der Transaktionsaktivitäten in Westdeutschland zwischen 1982 und 1993 untersucht. Ihr relatives Gewicht an den gesamten ökonomischen Aktivitäten hat im gesamten Beobachtungszeitraum kontinuierlich zugenommen. Dieser Anstieg ist das Ergebnis eines Zuwachses ihres Gewichts in allen Branchen sowie eines überproportionalen Wachstum von transaktionsintensiven Branchen. Ein Unterschied in der Produktivitätsentwicklung von Transaktions- und Transformationsaktivitäten konnte nicht beobachtet werden. Somit deutet nichts darauf hin, dass der Anstieg des relativen Gewichts der Transaktionsaktivitäten eine Wachstumsbremse darstellt. Summary Transaction costs have become a major topic of research in the last decades. However, there is still a great shortage of empirical approaches to their effects on the economic performance. A short review of these empirical studies indicates that the impact of transaction costs on economic growth is a controversially discussed topic. Based on the method proposed by Reichhardt (1995), the volume of transaction activities in West Germany between 1982 and 1993 is estimated. The analyses show that their relative weight has continuously risen. This development is caused by a growing importance of transaction activities in all branches as well as a relatively faster growth of those branches where the share of transaction activities is especially high. Simultaneously, the productivity of transaction as well as transformation activities has increased steadily. A significant difference between the growth rates in productivity was not found. Hence there is no evidence that the observed increase in transaction activities is a limiting factor for economic growth.

Local council members’ view on intermunicipal cooperation: does office-related self-interest matter?

ABSTRACT This paper analyzes data from a survey among local council members in 59 German municipalities. It asks them whether or not their home municipality should cooperate with neighbouring municipalities in the provision of public services such as childcare or road maintenance. Their answers are clearly driven by office-related self-interest. Delegates who have more political power and thus have more to lose if their home municipality cooperates are more likely to oppose intermunicipal cooperation. This interpretation receives further backing by the fact that delegates’ support for intermunicipal cooperation increases with the population size of their home municipality but decreases with the size of its neighbours.

The Political Economy of EU-funds: Evidence from Poland

Abstract We provide an empirical study analysing the distribution of EU funds among 2478 Polish municipalities in the period 2007–2011. EU funds are found to be concentrated in smaller municipalities and economically weak sub-regions, and do not increase in the municipalities’ fiscal capacity. Our primary focus rests on the question whether regional governments follow their own political self-interest when allocating EU funds even though national parties only play a minor role in Polish local politics and thus the conventional logic of supporting aligned governments does not apply. Difference-in-difference estimations show that the answer is affirmative: Municipalities whose voters are aligned with the regional government receive more EU funds per capita than non-aligned municipalities. Furthermore, we find support for the swing-district hypothesis: EU funds per capita decrease in the vote-share differential between the two leading parties.

Conditional Grants, Grant-Seeking and Welfare when there is Government Failure on the Subordinate Level

The paper addresses the welfare implications of conditional grants if government failure leads to inefficiencies in the production of regional public goods and services. Conditional grants may improve welfare by setting incentives for regions to improve efficiency. At the same time, resources are wasted in the process of grant-seeking. This paper provides a theoretical model to assess the net effect on welfare. A three-stage game-theoretic context is developed and simulations are performed to derive the optimal grant-distribution scheme. We found conditional grants to be welfare-enhancing in the vast majority of simulated scenarios under a classical utilitarian welfare function. Once distributional concerns are accounted for, the scope for conditional grants becomes limited.

Citizens’ support for inter-municipal cooperation: evidence from a survey in the German state of Hesse

ABSTRACT Inter-municipal cooperation (IMC) is often proposed as a politically feasible way by which rural municipalities can cope with intensified interregional competition and demographic change. We provide first evidence on citizens’ support for IMC using survey data from rural Germany. We find little evidence that citizens are more willing to support IMC in munici-palities that can – by the logic of economic theory – expect higher net benefits from IMC. Citizens’ support for IMC is primarily shaped by individual-level factors like the level of education, trust in local politicians and the degree of emotional attachment to the home mu-nicipality. Citizens’ beliefs regarding the economic and political consequences of IMC are found to have the largest marginal effect by far. Regressions predicting interpersonal differ-ences in these beliefs show that these beliefs have to be considered independent drivers of policy preferences. This result suggests that more research is needed to better understand the factors shaping citizens’ understanding of how economic policy works. This lack of under-standing applies to virtually all fields of economic policy.

The Myth of Bad Policy Choices: Why Democracies Choose Mediocre Policies

In a game-theoretical approach of probabilistic voting, we introduce biased beliefs among voters and retrospective voting. In order to micro-found biased beliefs we introduce the psychological concept of mental models. We put into perspective the claim that biased beliefs lead to bad policy outcomes in democracy, as has been argued, for instance, by Bryan Caplan (2007: The myth of the rational voter). We show that there is a self-correction mechanism in democracy that may mitigate the problem of biased beliefs. Democracy is characterized by suffering from mediocre mixtures of populist and good policies, and less by purely populist policy. Even good policy outcomes remain possible in equilibrium.