Otto H. Swank

Government spending cycles: Ideological or opportunistic?*

This paper examines whether partisan and opportunistic motives affect government expenditure growth in the Netherlands. The time series analysis, covering the period 1953–1993, allows for different types of government spending. In general, spending is inspired by ideological and opportunistic motives: all government expenditure categories show an upward drift during election times and the ‘partisan’ motives behind government spending are clearly revealed: left-wing cabinets attach greater importance to social security and health care than right-wing cabinets and right-wing cabinets value expenditure on infrastructure and defense more than left-wing parties.

Why Political Culture Should Be in the Lexicon of Economics

This editorial introduction sets out the case for political culture as a useful explanatory concept for understanding the diversity in economic policy decisions made by governments in different societies.

HOW COMMITTEES OF EXPERTS INTERACT WITH THE OUTSIDE WORLD: SOME THEORY, AND EVIDENCE FROM THE FOMC

Some committees are made up of experts, persons who care both about the matter at hand and about coming across as able decision makers. We show that such committees would like to conceal disagreement from the public. That is, once the decision has been reached, they show a united front to the outside world. Also, if such committees are required to become transparent, for example, by publishing verbatim transcripts of their meetings, members will organize pre-meetings away from the public eye. A large part of the article is dedicated to a case study of the U.S. Federal Open Market Committee in the United States. It provides suggestive evidence supporting our theory. (JEL: D71, D72, D82, E58) (c) 2008 by the European Economic Association.

In Defense of Boards

It is often assumed that bad corporate performance means a bad CEO. The task of a board of directors is then simple: dismiss the executive. If it fails to do so, the board is said to be indolent. We take a kinder approach to observed board behavior and point to the problems even well-intended boards would encounter. They face the twin task of disciplining and screening executives. We analyze the nature of the retention contract a board uses to discipline and screen executives. Consistent with empirical observation, we find that executives may become overly active to show their credentials, and that the link between bad performance and dismissal is weak.

On the Composition of Committees

This paper is concerned with the role of committees in collective decision-making processes in a world where agents must be motivated to collect information. Committees improve the quality of decision-making by providing information and by coordinating the collection of information. We address two types of questions. First, how does the composition of a committee affect final decisions? Second, what is the optimal composition of a committee from the decision makers point of view? As to the latter question, we show that the cost of information collection plays an important role. If this cost is low, then the preferences of the committee members should be aligned to those of the decision maker. Members with similar preferences as the decision maker collect the proper pieces of information. Moreover, manipulation of information does not occur if the preferences of the decision maker and the members are consonant. If the cost of searching is high, then the committee should be composed of members with polarized preferences. Outliers have a strong incentive to search for information.

Confidence Management: On Interpersonal Comparisons in Teams

Organizations differ in the degree to which they differentiate employees by ability. We analyze how the effect of differentiation on employee morale may explain this variation. We characterize sufficient conditions for the manager to refrain from differentiation. She refrains from differentiation when employees are of similar ability, especially if absolute levels are high. Avoiding differentiation boosts the self-image of employees. To limit the negative effects of differentiation, the managers strategy often relies on the coarsest message set possible. The likelihood that the manager differentiates depends on the presence of synergies between employees and on the convexity of the cost of effort function. Finally, we show that in the absence of commitment no differentiation is chosen too often.

Learning and signalling by advisor selection

In this paper we consider a model where a policy maker uses advice in order to (1) obtain information about the consequences of an innovation (information motive) and (2) to support political legitimacy of her decision (persuasion motive). We conduct our analysis in the context of a cheap-talk game with three players: (1) a policy maker, (2) the median voter in parliament or of the electorate and (3) an advisor. The advisor has private information about the consequences of policy. Communication between an advisor and a recipient improves as their preferences are closer aligned. If the preferences of the policy maker and the median voter are different the policy maker faces a trade-off. On the one hand, she wants to gain information to judge whether the innovation is worthwhile. On the other hand, she needs to convince the median voter whether the innovation is desirable.

Partisan Policies, Macroeconomic Performance and Political Support

In this paper we develop a voter model which builds on the partisan theory of macroeconomic policy. In the voter model, vote decisions are based on the economic performance of the incumbent and the type of economic problems a country faces. Like the conventional retrospective voter model, our model predicts that the incumbent benefits from favorable economic outcomes. In addition, our model leads to the prediction that Democratic presidents suffer more from inflation and benefit less from economic booms than Republican presidents. Estimates of popularity functions provide strong support for the hypotheses derived from our model.

Economic Policy, Model Uncertainty and Elections

We analyse a game theoretical model in which policy makers have superior knowledge about the working of the economy relative to voters. We show that parties increase their chances of reelection by basing their policies on the model that best fits in with their preferences. Moreover, we show that if parties care much about holding office, they may deliberately base their policies on a model that is electorally attractive, even if this model does not describe the working of the economy correctly. Our paper provides an explanation for the observation that different political parties subscribe to different economic philosophies. Copyright Blackwell Publishers Ltd 1998.

Budgetary Devices for Curbing Spending Prone Ministers and Bureaucrats

In this paper I study asimple game of the budgetary process. Thegame has three players. A spending proneminister, who proposes a budget, a primeminister, who accepts or vetoes, and abureaucrat who provides non-verifiableinformation about policy. The bureaucratis appointed by the spending minister. Ishow that in this setting public spendingis excessive. This result stems from theproposal power of the minister, and hisincentive to appoint a spending pronebureaucrat. Next, I examine two devices forcontrolling public spending: binding budgettargets imposed by the prime minister, anddelegating veto power to a spending aversefinance minister. It is shown that thelatter device is more effective than theformer device to curb a spending proneminister, because it not only reduces theproposal power of the spending minister,but also induces him to appoint lessspending prone bureaucrats.