The logic of party coalitions with political activism and public financing

This paper presents a model of party coalition formation between policy- motivated activists and office-seeking opportunists. In this framework, I con- sider how changes in party valence and public financing of political parties shape the equilibrium inside coalitions. Results show that, in equilibrium, op- portunists and activists have the same marginal rate of substitution between policy position and activists'contribution. An asymmetric worsening of one party's valence leads to divergence of its policy platform and a higher degree of activism. Furthermore, public financing of political parties drives activism or idealism out of politics. As a consequence, public financing is an important policy instrument to regulate the trade-o¤ between the degree of activism in politics and the independence of political parties from lobbying.activists, idealism, lobbyists, coalition formation, Nash bargaining, party valence, polarization.

Differentiation of Green Taxes: A Political-Economy Analysis for Germany

In this paper we study political-economy determinants of the differentiation of environmental taxes between sectors. Using a common-agency model, we provide predictions on tax differentiation which are then tested using data from the German Ecological Tax Reform. As the reform is revenue neutral and reduces labor costs, tax differentiation is not only determined by the activity of lobby groups favoring reduced tax rates, but also by the groups? interest in revenue rebates to labor. Empirical data underpin our theoretical findings: A regression analysis of Germany?s green tax reform explains environmental tax differentiation by the presence of sectoral interest groups. Besides market concentration and energy demand elasticities, the exposure of industries to international trade flows plays an important role in the environmental tax design. --environmental tax reform,interest groups,common agency

Common Agency and Computational Complexity: Theory and Experimental Evidence

In a common agency game, several principals try to influence the behavior of an agent. Common agency games typically have multiple equilibria. One class of equilibria, called truthful, has been identified by Bernheim and Whinston and has found widespread use in the political economy literature. In this paper we identify another class of equilibria, which we call natural. In a natural equilibrium, each principal offers a strictly positive contribution on at most one alternative. We show that a natural equilibrium always exists and that its computational complexity is much smaller than that of a truthful equilibrium. To compare the predictive power of the two concepts, we run an experiment on a common agency game for which the two equilibria predict a different equilibrium alternative. The results strongly reject the truthful equilibrium. The alternative predicted by the natural equilibrium is chosen in 65% of the matches, while the one predicted by the truthful equilibrium is chosen in less than 5% of the matches.lobbying;experimental economics;common agency;truthful equilibrium;natural equilibrium;computational complexity