M Gilli

Bargaining and Collusion in a Regulatory Model

Within a standard three-tier regulatory model, a benevolent principal delegates to a regulatory agency two tasks: the supervision of the …rm’s (two-type) costs and the arrangement of a pricing mechanism. The agency may have an incentive to manipulate information to the principal to share the gains of collusion with the …rm. The novelty of this paper is that both the regulatory mechanism and the side contracting between the agency and the …rm are modelled as a bargaining process. While as usual the ine¢ cient …rm does not have any interest in cost manipulation, we …nd that the e¢ cient …rm has an incentive to collude only if the agency’s bargaining power is high enough, and the total gains of collusion are now lower than those the two partners would appropriate if the agency could make a take-it-or

A Model of Chinese Central Government: the Role of Reciprocal Accountability

Why was the same state in China able to promote economic growth in the reform era but not in the previous thirty years? In this paper we focus on a speci c aspect that might help the search for a comprehensive explanation: the speci c institutional arrangement that induced autocratic government to adopt growth-enhancing policies. To this aim, we consider a standard political agency model (Besley, 2006) where the incumbent leader may be either congruent or not, and where both types need the support of the selectorate to hold on to power. Our main result is that in autocracies without electoral discipline, to restrain the opportunistic behavior of a leader, the size of the selectorateshould be intermediate: if too small, the selectorateis captured by the leader and has no disciplinary role; if too big, the leaders incentives are diluted.

Accountability in One-Party Government: Rethinking the Success of Chinese Economic Reform

This paper develops a new argument for the Chinese Communist Party´s success in implementing the post-Mao economic reform. We build a three-player political agency model, showing that the credibility of the threats of deposition by the selectorate and of revolts by citizens are both crucial factors in determining policy outcomes in the authoritarian political system. As the effective size of the selectorate and the cost of revolution vary dramatically across time, our results explain why different types of economic policy arise in different periods in China.

A Model of Chinese Central Government

Why was the Chinese State able to promote economic growth during the reform era, yet has been unable to do so over the previous 30 years? In this article, we focus on a specific aspect of the question, which will contribute to the development of a more comprehensive explanation: the specific institutional arrangement that may induce the autocratic government to adopt growth‐enhancing policies. We consider a standard political‐agency model (Besley, 2006) where the incumbent leader may or may not be congruent, and where, to maintain power, both leader types need the support of the selectorate, an elite group having a say in selecting the leader, as well as associated access to special privileges. Primarily, we find that in autocracies, without electoral discipline to restrain the opportunistic behaviour of a leader, the size of the selectorate should be intermediate; if it is too small, the selectorate is captured by the leader and has no disciplinary role, but if too big, the leaders incentives are diluted.

Citizenry Accountability in Autocracies: The Political Economy of Good Governance in China

Abstract Do the citizens have a role in constraining policies in autocratic governments? Usually the political and economic literature model autocracy as if the citizens have no role in constraining leader’s behavior, but actually autocratic government are afraid of possible citizens’ revolts. In this paper we focus on contemporary China to analyze how citizens might induce an autocratic government to adopt congruent policies. Although there is no party or electoral competition, the leader fears deposition by coup d’etat of the selectorate and revolutionary threats from citizens. We build a three player political agency model to study the role of both these constraints and we show that the effectiveness of the selectorate and of revolutionary threats are crucial factors in determining the policy outcomes. In particular, we show that the citizens can effectively discipline the leader because of the revolution threat notwithstanding the selectorate size, but this may result in a failed state when the costs of revolting and the selectorate size are small. As the size of the selectorate and the costs of revolution vary dramatically across countries, our result explain why different types of autocracies arise. In particular our model and results provide a useful framework to interpret China policy in the last twenty years.

Further Results on Verification Problems in Extensive-Form Games

The computational study of games is receiving increasing attention both in game theory and computer science. The challenge is distinguishing computationally tractable problems (also said easy), admitting polynomial{time algorithms, from the intractable ones (also said hard). In this paper, we focus on extensive form games, as the computational problems defined on such games are largely unexplored. We study the problem (aka verification problem) of certifying that a solution given in input is an equilibrium according to different refinements for extensive form games as the input change. We show that, when the input is a realization plan strategy profile (i.e., strategies for the sequence form representation), deciding whether the input is a Subgame Perfect Equilibrium or is a part of a Sequential Equilibrium is NP-hard even in two-player games (we conjecture the same holds also for Quasi Perfect Equilibrium). This means that there is no polynomial-time algorithm unless P = NP, but it is commonly believed that P x NP. Subsequently, we show that in two{player games, when the input is a behavioral strategy profile, there is a polynomial-time algorithm deciding whether the input is a Quasi-Perfect Equilib- rium, and a simple variation of the algorithm decides whether the input is part of some Sequential Equilibrium (in games with three or more players, the problem is known to be NP{hard for both Quasi-Perfect Equilibrium and Sequential Equilibrium). Finally, we show that, when the input is an assessment, there is a polynomial{time algorithm deciding whether the input is a Sequential Equilibrium regardless the number of players.

Logrolling Under Fragmented Authoritarianism: Theory and Evidence from China

This paper provides a rigorous theoretical and empirical analysis of the effect of logrolling between interest groups on social welfare in a non-democratic political system. In particular, we focus on China, where bureaucratic interest groups are separate vertical organizations reaching down from Beijing to the provinces and cities. The key question in this paper is: what are the effects of the logrolling of parochial interest groups on state policies and social welfare in autocracies? We address this question both theoretically and empirically. The theory predicts a specific distortion in resource allocation because of logrolling, while the empirical results confirm the theoretical prediction. We find policy outcomes under logrolling are characterized by excessive spending on all the interest groups’ preferred goods and insufficient spending on public goods. We test the existence of logrolling between the Ministry of Civil Affairs and Ministry of Health in China. Our result shows logrolling between the two ministries lead to inefficiencies in social security and health care policies.

Political Regimes and Government’s Reaction to Terrorism. A Simple Model

Abstract Why do autocratic regimes have sometimes a weak reaction to terrorism, and conversely why do democratic regimes sometimes react harshly? More generally, what are the determinants of governments’ reaction to terrorism? And, what are the determinants of terrorism and of its dynamic? In the last years, there have been many empirical studies conducted on these questions. We believe, however, that a general theoretical model is missing, which would significantly help empirical research and its interpretation. This paper is a first attempt towards the construction of such a general model. In this model, individual human capital, government responsiveness and economic development are seen as potential factors influencing individual choice to use terrorism as a political strategy. In this paper, we elaborate a strategic model of terrorism with a specific focus on domestic terrorism, in which the individual choice of joining a terrorist organization is a way of pursing specific political aims. This decision is in turn influenced by the interaction between terrorist’ activity, political engagement and government policies. We are able to prove that three different political regimes form the equilibrium outcomes, and that there is not a simple monotonic relationship between a regime accountability and terrorism’ repression. It is then also perfectly possible for a democratic regime to harshly repress terrorism and for an autocratic polity to be tolerant on terrorism.

A New Approach to Contest Models

The purpose of this paper is to propose a symmetric two player general contest model in order to study the relationship between equilibria and crucial structural parameters of the model. In particular, given a general specification of the players’ set of possible entries, of the agents’ utility functions, and of the rules that presides over outcomes, we aim to analyze the characteristics of the set of equilibria as a function of structural characteristics of the contest technology and of the outcome function. Focusing on three main cases, we study the effect of introducing spillover in the marginal productivity of agents’ efforts and in the polarization between agents’ goals. Firstly, we show that without spillover the equilibrium efforts’ intensity is uniquely connected to the ratio between marginal productivity of effort and polarization. Secondly, we are able to connect existence of multiple symmetric and asymmetric equilibria to the intensity of spillover effects into outcomes. Finally, we show that spillover in contest technology can imply the non-existence of equilibria.

A Simple Extension of the Dasgupta–Maskin Theorem, with an Application

This paper generalizes the classical existence results for games with discontinuous payoffs, developed by Dasgupta and Maskin in 1986. This new existence result is then applied to a simple duopoly model with quantity precommitment and Bertrand competition. Copyright 1997 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research