Understanding Privatisation Policy: Political Economy and Welfare Effects

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Understanding Privatisation PolicyPolitical
Economy and Welfare Effects

• Workpackage 2
• The Determinants of Privatisation Policy

Humberto Llavador and Paolo PinottiUniversitat
Pompeu Fabra Barcelona, UPP Kickoff
MeetingFebruary 24, 2006
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WP2 The determinants of privatization policy

• Combined theoretical and empirical approach.
• Modeling political competition and the
  institutional framework.
• Data collection on political institutions and
  political orientation.
• Political fragmentation, ideology and
  privatization.

• Expected outcomes
• Guidelines for data collection on political
  institutions (July 2006)
• Database on political institutions and political
  orientation (April 2007)
• Two to four theoretical papers (Feb. Nov. 2007)
• Two empirical papers (July Nov. 2007)

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Understanding and modeling political competition
and voting behavior.

• Searching for a political competition model for
  parliamentary (proportional representation) and
  multiparty political systems.
• The role of parliaments, coalitional governments
  and the opposition parties in policymaking and
  its influence in electoral outcomes.
• A distinctive feature is that parties and voters
  care about margins of victory.

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Understanding and modeling political competition
and voting behavior.

• Incumbency advantage and legislature
  irresponsibility
• Western democracies present high re-election
  rates.
• How much do incumbents choose their policy
  actions to gain electoral support?
• The political science literature has been careful
  to recognize that answering this question and
  measuring the true incumbency advantage is not as
  stratigtforward as one may think.
• Understanding incumbency advantage and its causal
  relationship with legislature irresponsibility
  has direct implication on the understanding of
  the policy choices made by incumbents.

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Privatization, political fragmentation, and
ideology

• political fragmentation ? privatization
• common pool problem
• war of attrition model
• ideology ? privatization
• distributional and welfare consequences
• privatization ? ideology
• strategic privatization (Biais Perotti AER
  2002)

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contribution

• provide comprehensive database
• approx. 40 countries (including all OECD)
• over privatization period (1977-200)
• use it to test empirical implications of
  political economy models relevant to
  privatization
• political fragmentation, ideology ? timing of
  privatization
• privatization methods ? ideology

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databaseissues

• qualitative indexes
• binary/discrete vs. continuous measures
• trade off between descriptive power and
  discretion
• accuracy of data
• government composition (ok)
• parliament composition (low)
• electoral results (low)

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databasepolitical fragmentation

• parties as basic cohesive political players

• existing measures
• government and parliament
• binary cohesive vs. fragmented
• simple number of parties
• concentration indexes
• elections
• binary majoritarian vs. proportional

• our proposal
• government and parliament
• concentration indexes
• elections
• continuous dis-proportionality index

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databasepolitical fragmentation

• effective number of parties (gov. and parl.)
• electoral dis-proportionality

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databasepolitical fragmentation
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databaseideology

• existing measures
• defined only for executive
• binary/discrete indexes
• arbitrary

• our proposal
• define measure for single parties
• continuous measure
• based on expert surveys
• Huber Inglehart (1995)
• Laver and Hunt (1992)
• Castles and Mair (1984)
• aggregate by weighted average (weights seats)

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databasesample sources

• sample
• 21 OECD countries over 1977-2002
• sources
• Liphart (1994)
• Banks, Day Muller (2002)
• Electoral Studies (review, various issues)
• Elections Around the World (web site)
• cross-checking among the different sources

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databaseaccuracy
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empirical testtiming of privatization

• successful reform is public good
• political fragmentation affects distribution of
  political, social and economic costs of reform
• war of attrition model
• less fragmentation faster reform
• more fragmentation longer time to reform
• parallel literature on public debt / deficits
• a remark war of attrition has predictions for
  timing

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empirical testtiming of privatization
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empirical testtiming of privatization
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work in progress

• expand the sample
• conclude the analysis about the determinants of
  the timing
• define a proper empirical test for the Biais
  Perotti (2002)