MIDTERM EXAM 1: Political Economy Winter 2017

Transcription

1 Name: MIDTERM EXAM 1: Political Economy Winter 2017 Student Number: You must always show your thinking to get full credit. You have one hour and twenty minutes to complete all questions. All questions are worth 33 points each.

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

3 Question 1 Checks and Balances Explain, as carefully as you can, the concept of checks and balances within the US Constitution. Give at least two examples of specific institutional features within the American political system that correspond to this particular approach to constitutional design. The concept of checks and balances within the US Constitution is that the government can be prevented from abusing is power by giving overlapping jurisdiction to separate branches of government without perfectly aligned incentives (conflict of interests). Overlapping jurisdiction increases democratic accountability because multiple groups of politicians can be (democratically) punished by the electorate for a single government action. So politicians have an incentive to block rent-seeing actions by other politicians, and successful rent seeking behavior requires collusion across branches of government, which is (hopefully) very difficult. The concept is illustrated nicely by the contrasting models of elected politicians choosing taxation and spending with either one politician choosing both the level of taxation, or the two roles assigned to separate politicians. In the single politician model, the public cannot enforce zero rents, because it is then optimal for the politician to abscond with the whole budget. In the separations of power model, the politician in charge of taxation will not be reelected if he collects more than necessary, and the spending politician will not be reelected if she does not allocate all funds to the public good. Neither politician has an incentive to unilaterally deviate, and the model rules out collusion with the absence of side payments and the inability to develop long-term cooperative strategies in Markovperfect equilibrium. Examples: -Presidential veto of bills -President proposes budget, congress allocates resources -Senate confirmation of presidential appointments -Bills must be passed in both the House and Senate -Judicial power to annul laws ruled unconstitutional -Separate Congressional Authorization and Appropriation committees (though not in constitution)

4 Question 2 Media Bias A Measure of Media Bias, QJE 2005 By Tim Groseclose and Jeffrey Milyo ABSTRACT: We measure media bias by estimating ideological scores for several major media outlets. To compute this, we count the times that a particular media outlet cites various think tanks and policy groups, and then compare this with the times that members of Congress cite the same groups. Our results show a strong liberal bias: all of the news outlets we examine, except Fox News' Special Report and the Washington Times, received scores to the left of the average member of Congress. Consistent with claims made by conservative critics, CBS Evening News and the New York Times received scores far to the left of center. The most centrist media outlets were PBS NewsHour, CNN's Newsnight, and ABC's Good Morning America; among print outlets, USA Today was closest to the center. All of our findings refer strictly to news content; that is, we exclude editorials, letters, and the like. Please discuss at least two main issues arising from employing this specific approach for the assessment of bias in news reporting by the media. Possible issues: a) The definition of bias is defined in relation to the distribution of ideologies in Congress, which is not representative of the American public. Congressional elections are first-pastthe-post, which is associated with i) more extreme views among candidates and elected members than the general public, and ii) a more extreme legislature overall as a small lead in the majority of states could lead one party to dominate congress. So the average member of congress might be quite far ideologically from the average member of the American public. That being said, it s not even clear that the American public should be used as a measure of bias if the public is systematically misinformed on certain issues. This is partly a semantic debate about the term bias, but it is important for interpreting the results. b) Patterns of citation may not reflect partisan views. If you are trying to persuade someone, you might want to cite sources they find trustworthy rather than your own preferred sources. So different patterns of citation might reflect different targets of persuasion (for example, members of congress might be primarily concerned with persuading people in target districts rather than the general public). We will see that Gentzkow and Shapiro (2010) provides evidence that slant is largely demand-driven. c) Congress might also be communicating something different than newspapers when they cite a source for example, indicating that they have heard their concerns of donors or constituents and are representing their interests. What makes a think tank or policy group useful for this type of signaling might be unrelated to whether it is useful as a factual reference. d) It might be useful to consider whether this citation-based measure indicates differences in topic or slant.

5 Question 3 Bargaining in legislatures over policy (Baron and Ferejohn, 1989) Consider a legislature of n (odd) members that deliberates with a simple majority rule. The goal is to share a cake, of value normalized to 1, across the members. Time is discrete and discounting happens at rate < 1. At each time t a formateur i is randomly chosen (recognized) for deciding on how to split the cake. The proposal presented by i is indicated as x i = (x i 1, x i 2,, x i n) such that n x i j 1 and we let x i j indicate the share accruing to j under i s proposal. Preferences of member j are given by u j (t, x i ) = t x i j Notice that delay is costly in this setup because for given share of the pie waiting another period reduces the payoff by a factor < 1. The proposal is voted upon immediately and it cannot be amended (a closed amendment rule). If i s proposal is approved by other (n-1)/2 members, it passes and payoffs realize. If the proposal fails, the period ends and the next time period starts anew (so another formateur is picked at random, a new proposal is presented and voted upon, and so on ). If no proposal is approved the status quo payoff is 0. We will focus on characterizing the stationary subgame perfect equilibria of this game. [20 points each answer] a) Suppose time is finite and the bargaining is at the last period T. Do you agree that the optimal strategy of formateur i is to set for (n-1)/2 members j i x i j = arbitrarily close to 0 and keep essentially the whole cake (of value 1) for himself? Why? Yes, as the game ends after T. The continuation value at that point is 0. Supporting the proposal and receiving 0 is a weakly dominant strategy. b) The recognition probability of every player is 1/n and the discount factor is. What is the discounted continuation value v j for any j=1,,n at T-1? Consider that j could be the formateur, could be in the coalition but not the formateur, or j could be out. vj = 1/n*[1- *0 *(n-1)/2] +(n-1)/2n* *0 =1/n or vj = /n The first term is the probability of becoming the formateur, in which case you receive the whole pie less the (zero) payments you have to pay to each of the (n-1)/2 members in the coalition. The second term is the probability that j is not the formateur (n-1)/n multiplied by the probability of being in the coalition (1/2) and the payment if in the coalition (0). The discounted continuation value is this multiplied by. c) Characterize the equilibrium of this game for T=2 based on your answer to points a) and b). Importantly, do specify the strategy of the formateur and that of the members at t=1. If i is the proposer at t=1, for the equilibrium concept we specified, his strategy will be distribute /n to a minimum winning coalition of (n-1)/2 members and keep 1-( /n)*(n-1)/2 for himself. Any member votes in favor of the proposal at t=1 if he gets at least /n. Any member votes in favor of the proposal at t=2. d) A stationary equilibrium for infinite T will require that for j to accept the proposal x i j v j Note that the present value of rejecting a proposal for member j must be equal to the continuation value of rejecting at the next period or v j = 1/n*[1- v j *(n-1)/2] + (n-1)/2n*[ v j ]

6 Can you characterize the (stationary SPE) equilibrium of this game now? [Hint: as a formateur you have to make the other members in your minimum winning coalitions indifferent between accepting your proposal or rejecting and continue playing.] vj = 1/n*[1- vj *(n-1)/2] + (n-1)/2n*[ vj] implies nvj =1 or vj = 1/n If i is the proposer at t, for the equilibrium concept we specified, his strategy will be distribute to j i x i j = vj = /n to a minimum winning coalition of (n-1)/2 members and keep for himself x i i = 1-( /n)*(n-1)/2. Any member votes in favor of the proposal at t if he gets at least /n.