Understanding Privatisation Policy: Political Economy and Welfare Effects Workpackage 2 The Determinants of Privatisation Policy Humberto Llavador and Paolo Pinotti Universitat Pompeu Fabra Barcelona, UPP Kickoff Meeting February 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 ( …) 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 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

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)