USING THE CONCEPT OF STRUCTURE-INDUCED EQUIILIBRIUM, THIS ESSAY DEVELOPS A SIMPLE BEHAVIORAL MODEL OF ROLL CALL VOTING. THE MAIN RESULTS ARE (1) IF SOME COMMITTEES ARE PREFERENCE OUTLIERS RELATIVE TO THE LEGISLATURE AS A WHOLE, THEN ROLL CALL DATA ARE LIKELY TO BE ARTIFICIALLY UNIDIMENSIONAL. (2) THE UNIDIMENSIONAL BIAS PERSISTS EVEN AS THE DIMENSIONALITY OF THE POLICY SPACE BECOMES LARGE. (3) EVEN IF COMMITTEES ARE PREFERENCE OUTLIERS, IT MAY BE IMPOSSIBLE TO DISCOVER THIS FACT BY LOOKING ONLY AT ROLL CALL VOTES.
THIS PAPER EXTENDS THE WORK ON STRUCTURE-INDICED EQUILIBRIA BY EXPLICITLY CONSIDERING VOTERS' EXPECTATIONS. THE STANDARD ASSUMPTION OF MYOPIC EXPECTATIONS IS CONTRASTED WITH THE ALTERNATIVE ASSUMPTION OF PERFECT-FORESIGHT EXPECTATIONS.
IN THIS STUDY THE STRUCTURE-INDUCED EQUILIBRIUM APPROACH FOR MODELING DEMOCRATIC INSTITUTIONS IS EXTENDED TO ALLOW FOR THE ADDED STRUCTURAL FEATURES OF EXECUTIVE VETO AND LEGISLATIVE OVERRIDE. A MULTIDIMENSIONAL MODEL IS PRESENTED FOR A BUDGETARY PROCESS INVOLVING THREE ACTORS - A LEGISLATURE, AN APPROPRIATIONS COMMITTEE, AND AN EXECUTIVE. IN ORDER TO FOCUS ATTENTION ON THE ROLE OF THE VETO AND OVERRIDE POSSIBILITIES, SIMPLIFYING ASSUMPTIONS ARE MADE WITH REGARD TO OTHER ASPECTS OF THE AGENDA FORMATION PROCESS. IN PARTICULAR, THE COMMITTEE HAS MONOPOLY AGENDA POWER, A CLOSED AMENDMENT CONTROL RULE IS OPERATIVE, AND PERFECT-FORESIGHT EXPECTATIONS ARE HELD BY THE COMMITTEE AND THE EXECUTIVE. GIVEN THESE ASSUMPTIONS, UTILITY MAXIMIZATION BY THE SEVERAL ACTORS GENERATES A BUDGET OUTCOME CHARACTERIZED AS A STRUCTURE-INDUCED EQUILIBRIUM. THE GENERAL MODEL IS ILLUSTRATED GEOMETRICALLY WITH A TWO-DIMENSIONAL EXAMPLE, PERMITTING BUDGET OUTCOMES TO BE ANALYZED FOR VARIOUS COMBINATIONS OF VETO RULES AND OVERRIDE PROVISIONS. THE ANALYSIS DEMONSTRATES THAT BUDGET OUTCOMES ARE SENSITIVE TO ALTERNATIVE SPECIFICATIONS OF VETO RULES AND OVERRIDE PROVISIONS. IN THE ILLUSTRATION, EXECUTIVE VETO POWER IS SHOWN TO VARY DIRECTLY WITH BOTH THE PERMISSIVENESS OF THE VETO RULE AND THE STRINGENCY OF THE OVERRIDE PROVISION. SIMILAR RELATIONSHIPS, HOWEVER, ARE NOT FOUND TO EXIST FOR TOTAL BUDGET EXPENDITURES.
This paper presents a market with asymmetric information where a privately revealing equilibrium obtains in a competitive framework and where incentives to acquire information are preserved. The equilibrium is efficient, and the paradoxes associated with fully revealing rational expectations equilibria are precluded without resorting to noise traders. The model admits a reinterpretation in which behavioral traders coexist with rational traders, and it allows us to characterize the amount of induced mispricing.
"News--or foresight--about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example of foresight, simple theory makes transparent the economic behavior and information structures that generate non-fundamental equilibria. Econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes; biases are quantitatively important when two canonical theoretical models are taken as data generating processes. Both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized tax information flows. Differential U.S. federal tax treatment of municipal and treasury bonds embeds news about future taxes in bond yield spreads. Including that measure of tax news in identified VARs produces substantially different inferences about the macroeconomic impacts of anticipated taxes"--National Bureau of Economic Research web site
In many countries, the legal system or social norms ensure that firms are stakeholder oriented. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than demand uncertainty. With globalization shareholder firms and stakeholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms and compare these mixed equilibria with the pure equilibria with stakeholder and shareholder firms only. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms.
