FINAL EXAM: Political Economy Winter 2017

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1 FINAL EXAM: Political Economy Winter 2017 Name: You must always show your thinking to get full credit. You have two hours and thirty minutes to complete all questions.

2 This page is for your grade. Leave it blank please.

3 Question 1 Nuclear option in Senate Confirmation (20 pts.) Senate Eliminates Filibuster for Supreme Court Nominees GOP-led effort paves way for Neil Gorsuch to be confirmed Friday Wall Street Journal April 6, 2017 By Byron Tau and Siobhan Hughes WASHINGTON Senate Republicans voted to end the filibuster of Supreme Court nominations Thursday, setting the stage for the rapid elevation of Judge Neil Gorsuch to the high court and removing a pillar of the minority party s power to exert influence in the chamber. Judge Gorsuch s confirmation by the Senate, expected Friday, would return the Supreme Court to full strength for the first time in 14 months, since the death of Justice Antonin Scalia in February of last year. It means Judge Gorsuch could be a key vote on coming cases, including the high court s possible consideration of President Donald Trump s latest executive order on immigration and visas. [ ] [ ] In a showdown on the Senate floor that unfolded over 2½ hours Thursday, Republicans fell five votes short in their efforts to end the Democratic filibuster, which would have required 60 votes. Mr. Schumer pleaded with Mr. McConnell not to eliminate the filibuster, while Mr. McConnell stared impassively ahead. The majority leader proceeded to trigger the rules change, a move sometimes called the nuclear option because it upended a decades long Senate tradition. In a vote along party lines, Republicans ratified Mr. McConnell s motion. [ ] Explain the role of the filibuster in Senate confirmation of executive branch appointments. What is the cloture vote? What are the likely consequences of this rule change, also known as nuclear option, for such high level (e.g. Supreme Court Justices) confirmations? Would you consider stable a legislative system where supermajority voting requirements can be changed by simple majority rule votes like in this specific instance? Explain.

4 Question 2 Austen-Smith and Banks (1988). (from Persson and Tabellini) (40 pts.) Suppose that three parties in a parliament are indexed by L, M, R, corresponding to leftist, middle, and rightist party respectively. The party in control of the agenda sets a policy 0 y 1 and divides the exogenous rents from being in office, R. More specifically, the party selects a vector {R L; R M; R R} such that R L + R M + R R R. Parties k=l, M, R have preferences over the policy function and rents given by: U k = R k (x k - y) 2 where {x L; x M; x R} = {0; 0.5; 1} respectively. Parties were elected with vote shares v L> v M> v R. They play the following game, which (realistically) attributes agenda setting roles based on vote shares (i.e. the largest party tries to form a coalition first, then if the first does not succeed the second largest tries, and so on). The largest party proposes a policy y and an allocation vector {R L; R M; R R} first. The policy and the allocation will need the support of a coalition of parties in parliament to be implemented (any two parties). If the platform is rejected, the second largest party can then propose a platform. If again the policy is

5 rejected, then the smallest party can propose a platform. If even this fails to gather the support of a coalition, all parties get 0. A) Describe the equilibrium proposals if the coalition needs two parties independently of vote shares. Explain why a large leftist party may wish to form a coalition with a small rightist party. [Hint: work by backward induction, solving the constrained problem for R first. Make sure to consider that R needs L or M to play along as well, but it has all the bargaining power at this final stage. Also notice that for R there is a better ally between L and M based on their bliss points. When done with R, hen move up to M s problem, noticing that L s has no outside option at this point, but R does (so L is cheaper). Finally solve the problem for L which will set the platform in order to form a coalition]

6 B) Now suppose that v L> v R> v M. Compute the equilibrium outcome. Assume M attempts to form a coalition with R in the last period (M is indifferent between coalition partners). Compute the parties equilibrium utilities. [Hint: Answer this question in the same way as A, but mind the change in the order of agenda setters]

7 C) Assume the members of the electorate have bliss points x L, x M or x R. Further assume that there are more voters with bliss point x L than with bliss point x M, and one more voter with bliss point x M than with bliss point x R. Could there be an equilibrium in which all voters vote for the party whose policy platform they most prefer? More in general can you qualitatively describe what issues related to strategic voting may emerge in cases in which a voter expects a coalition to form (and not just a single party)?

8 D) An argument for having a proportional representation electoral rule with more than two parties is that the legislature s composition in such system better represents the voters preferences than the first-past-the-post system with only two parties. Discuss this argument in light of your answers to questions A. to C. [Hint: notice that in this model the influence over policy is not monotonically increasing in the vote shares and the number of seats a party has in parliament, hence voting for the most preferred party may not be necessarily optimal.] Yes, it is. Proper of a large class of costly communication games.

9 Question 3 Reconciliation (20 pts.) What is reconciliation in the US Congress? Why is it important?

10 Question 4 Special Interest Politics (20 pts.) Read the following excerpt from promarket.org, a business and regulation blog. After setting a definition for lobbying, or policy advocacy people in the private sector getting paid to influence public policy, regardless of the strict definition of lobbyist in the LDA LaPira and Thomas found that 52 percent of those involved in this type of activity did not report activities related to lobbying in the year they surveyed (2012). This also means that, since in 2012 about $3.3 billion were spent on lobbyists registered under the LDA provisions, the total amount spent was probably double that sum. Source: LaPira Please discuss this evidence related to published research by political scientist Tim LaPira. Who is a lobbyist according to US law (LDA Lobbying Disclosure Act)? Do they have to register? What do they disclose? About what? What is shadow lobbying? How big of an issue is this from the perspective of disclosure and the role of money in politics?

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12 Question 5 Polarization Consider the following two pictures: Note: Unity Votes are congressional roll call votes where the majority of one party voted against the majority of the other party. Source: voteview.com What are their likely implications of these two graphs in terms of party polarization in the US Congress? Explain clearly why. What are the main issues you see associated with a low polarized Congress? What are the benefits of low political polarization? Can you conjecture any hypothesis explaining these secular trends in polarization? (20 pts.)

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14 Question 6 The Sweet Spot Please comment this figure from The Electoral Sweet Spot: Low-Magnitude Proportional Electoral Systems Carey and Hics (APSR April 2011), in particular emphasize the type of trade off indicated in the graph. (20 points).

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