Richard Holden

The Rising Incumbent Reelection Rate: What's Gerrymandering Got to Do With It?

The probability that an incumbent in the U.S. House of Representatives is reelected has risen dramatically over the last half-century; it now stands at nearly 95%. A number of authors and commentators claim that this rise is due to an increase in bipartisan gerrymandering in favor of incumbents. Using a regression discontinuity approach, we find evidence of the opposite Effect. All else equal, changes in redistricting have reduced the probability of incumbent reelection over time. The timing of this effect is consistent with the hypothesis that legal constraints on gerrymandering, such as the Voting Rights Act, have become tighter over time. Incumbent gerrymandering may well be a contributor to incumbent reelection rates, but it is less so than in the past.

Ambiguity and Extremism in Elections

We analyze a model in which voters are uncertain about the policy preferences of candidates. Two forces affect the probability of electoral success: proximity to the median voter and campaign contributions. First, we show how campaign contributions affect elections. Then we show how the candidates may wish to announce a range of policy preferences, rather than a single point. This strategic ambiguity balances voter beliefs about the appeal of candidates both to the median voter and to the campaign contributors. If primaries precede a general election, they add another incentive for ambiguity, because in the primaries the candidates do not want to reveal too much information, to maintain some freedom of movement in the policy space for the general election. Ambiguity has an option value.

The Original Management Incentive Schemes

During the 1990s, the structure of pay for top corporate executives shifted markedly as the use of stock options greatly expanded. By the early 2000s, as the dot-com boom ended and the Nasdaq stock index melted down, these modern executive incentive schemes were being sharply questioned on many grounds—for encouraging excessive risk-taking and a short-run orientation, for being an overly costly and inefficient method of providing incentives, and even for tempting managers of firms like Enron, WorldCom and Tyco to commit fraud in order to ensure a high stock price at the time of exercise. This article examines executive incentive schemes developed by Du Pont and General Motors in the 1920s—the original incentive schemes linking executive compensation to stock prices. The author argues that these plans were well-designed to pre-empt and address many of the criticisms of modern-day executive stock option plans.

Subgame Perfect Implementation With Almost Perfect Information

The theory of incomplete contracts has been recently questioned using or extending the subgame perfect implementation approach of Moore and Repullo (1988). We consider the robustness of this mechanism to the introduction of small amounts of asymmetric information. Our main result is that the mechanism may not yield (even approximately) truthful revelation as the amount of asymmetric information goes to zero.

Supermajority Voting Rules

The size of a supermajority required to change an existing contract varies widely in different settings. This paper analyzes the optimal supermajority requirement, determined by multilateral bargaining behind the veil of ignorance. The optimum is determined by a tradeoff between reducing hold-up power of small groups and reducing expropriation of minorities. We solve for the optimal supermajority requirement as a function of the distribution of voter types, the number of voters and the degree of importance of the decision. The findings are consistent with observed heterogeneity of supermajority requirements in different settings and jurisdictions.

Rational-Expectations Equilibrium in Intermediate Good Markets

We analyze a rational-expectations model of information acquisition and price formation in an intermediate- good market: prices and net supply are non-negative, there are no noise traders, and the intermediate good has multiple potential uses. Several of our results differ from the classic Grossman-Stiglitz approach. For example, the price mechanism is more informative at high and low prices and potentially uninformative at middle prices. Also, an informed trade by a producer of one final good amounts to a noise trade from the perspective of a producer of another final good, so (a) as the price mechanism becomes more informative for producers of one final good, it becomes less informative for producers of others, who therefore have a stronger incentive to acquire information, so information acquisition has the strategic-complements property between groups, and (b) having more producers (in multiple groups) become informed need not increase the informativeness of the price mechanism.

The Role of Bounded Rationality and Imperfect Information in Subgame Perfect Implementation - An Empirical Investigation

In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullos subgame perfect implementation mechanism induces truth-telling in practice, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the goods value. We find that Moore-Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. This failure to implement truth-telling is due to beliefs about the irrationality of ones trading partner. Therefore, although the mechanism should - in theory - provide incentives for truth-telling, many buyers in fact believe that they can increase their expected monetary payoff by lying. The deviations from truth-telling become significantly more frequent and more persistent when agents face small amounts of uncertainty regarding the goods value. Our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of Moore-Repullo mechanisms in practice.

The Rising Incumbent Advantage: What's Gerrymandering Got to Do With It?

The probability that an incumbent in the United States House of Representatives is reelected has risen dramatically over the last half-century. It now stands at more than 98%. A number of authors and commentators claim that this rise is due to an increase in bipartisan gerrymandering in favor of incumbents. Using a regression discontinuity approach, we find evidence of the opposite effect. All else equal, redistricting has reduced the probability of incumbent reelection over time. The timing of this effect is consistent with the hypothesis that constraints on gerrymandering, such as the Voting Rights Act, have become tighter over time. Incumbent gerrymandering may well be a contributor to incumbent reelection rates, but it is less so than in the past.

Organizations with Power-Hungry Agents

We analyze a model of hierarchies in organizations where neither decisions themselves nor the delegation of decisions are contractible, and where power-hungry agents derive a private benefit from making decisions. Two distinct agency problems arise and interact: Subordinates take more biased decisions (which favors adding more hierarchical layers), but uninformed superiors may fail to delegate (which favors removing layers). A designer may remove intermediate layers of the hierarchy (eliminate middle managers) or de-integrate an organization by removing top layers (eliminate top managers). We show that stronger preferences for power result in smaller, more de-integrated hierarchies. Our key insight is that hoarding of decision rights is especially severe at the top of the hierarchy.

Peer Effects on the United States Supreme Court

Using data on essentially every US Supreme Court decision since 1946, we estimate a model of peer effects on the Court. We consider both the impact of justice ideology and justice votes on the votes of their peers. To identify these peer effects we use two instruments that generate plausibly exogenous variation in the peer group itself, or in the votes of peers. The first instrument utilizes the fact that the composition of the Court varies from case to case due to recusals or absences for health reasons. The second utilizes the fact that many justices previously sat on Federal Circuit Courts. Those who served on the Circuit Courts for short (long) periods of time are empirically much more (less) likely to affirm decisions from their “home” court. We find large peer effects. Replacing a single justice with one who votes in a conservative direction 10 percentage points more frequently increases the probability that each other justice votes conservative by 1.6 percentage points. Further, a 10% increase in the probability that a given justice votes conservative leads to a 1.1 percentage point increase in the probability that each other justice votes conservative. This indirect effect increases the share of cases with a conservative outcome by 3.6 percentage points (excluding the direct effect of the new justice). In general, we find indirect effects are large relative to the direct mechanical effect of a justice’s own vote.