Understanding Privatisation Policy:Political Economy and Welfare Effects

Workpackage 2

The Determinants of Privatisation Policy

Humberto Llavador and Paolo PinottiUniversitat Pompeu Fabra

Barcelona, UPP Kickoff MeetingFebruary 24, 2006

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)

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.

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.

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)

contribution

1. provide comprehensive database approx. 40 countries (including all OECD) over privatization period (1977-200…)

2. use it to test empirical implications of political economy models relevant to privatization

political fragmentation, ideology timing of privatization

privatization methods ideology

database:issues

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)

database:political fragmentation

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

parties as basic cohesive political players

database:political fragmentation

effective number of parties (gov. and parl.)

electoral dis-proportionality

database:political fragmentation

database:ideology

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)

database:sample & 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

database:accuracy

empirical test:timing 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

empirical test:timing of privatization

empirical test:timing of privatization

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)