Rational expectations & time-inconsistent preference problems James Raymond Vreeland, Georgetown University Korea University Summer Campus Faculty Global KU Frontier Spirit Aug 2009

Lesson from the Mid-term & from the option to assign 0 weight to the final: As long as there is a credible threat that the exam will count, it can solve your time- inconsistent preference problem Why can I get away with this at summer campus? Reputation – I wouldn’t do this on my home campus, or if I came to KU every summer But ultimately, the test didn’t matter – it was just a mechanism to get you to solve your time- inconsistent preference problem

Weighting the final exam & Rational expectations Rational expectations: the best predictor for future performance is past performance Expected final grade = midterm grade More precisely: Final grade = midterm grade + >shock< The shock is unobserved to me a priori I don’t know if you worked harder in the beginning or the end of the semester But I suspected that most of you worked harder in the second part (and give your grades, I was right) Still, unless your performance deviated a GREAT deal, you ended up with the same grade as the mid-term So, for most of you, allowing you to weight the exam made no difference Still, assuming you – yourself – knew how well you did, then you should assign high weight only if you thought you did better Thus, the option was an act of generosity… which some didn’t take!!!!

Note Basically I gave you the option of dropping your poorer performance (though you had to decide without knowing the 2 nd grade)

Descriptive stats (for those who took the exam) Mean:77 Median:85 Min:34 Max:100 Standard Deviation:19 Number of exams:39 Final exam

Descriptive stats (for those who took the exam) Mean:71 Median:68 Min:40 Max:96 Standard Deviation:16 Number of exams:36 Recall mid-term:

Recall mid-term

Final grades

Why the games? To amuse myself? Pedagogic justification: What lesson have I been trying to teach you all semester? THE LESSON OF USING AN INSTITUTION TO SOLVE A TIME INCONSISTENT PREFERENCE PROBLEM! The (credible) exam ties your hands Commitment –Hands tying of present government (two level game) – change the payoffs for other veto players –Hands tying of future governments – LOCK-IN! –Hands tying of present governments – signaling resolve to foreign and/or domestic audiences

Secret bonus level lecture!

Domestic institutions under dictatorship story… or CAT Selection: Why Dictatorships enter into the UN Convention Against Torture

The Puzzle (Hathaway 2003):

I will explain this puzzle… The solution has to do with political institutions under dictatorship Particularly: multi-party dictatorships I will explain that… 1.We observe more torture in MP dictatorships 2.MP dictatorships are more likely to enter into the CAT

My solution begins with the logic of torture: Torture is more likely when power is shared than when power is absolute (Kalyvas 2000, Arendt 1970). A measure of power sharing? Some dictatorships allow for –INDEPENDENT POLITICAL PARTIES (Gandhi 2003). Under no-party & one-party states, limitations are obvious. –No ambiguity. With multiple political parties, some degree of dissent is endorsed by the state. –Ambiguity. Some people go too far. I predict torture to be ironically higher in more liberal dictatorships with multiple political parties.

Will no/one-party states enter into the CAT? They are not anti-torture. One reason we observe low levels of torture is because of the FEAR of torture. They face no pressure from organized alternative political parties to adopt the CAT. I predict no/one-party states are less likely to sign/ratify the CAT.

Will multi-party dictatorships enter into the CAT? Institutions like multi-parties “encapsulate” parts of society into the regime (O’Donnell 1979, Gandhi and Przeworski 2006). Regime faces pressure from organized political parties. Policy concessions (Gandhi 2004). –Spend more on education, less on the military Entering the CAT is a form of policy concession. I predict more liberal dictatorships will be more likely to sign/ratify the CAT.

Empirical evidence Show that MP dictatorships have more torture Show that MP dictatorships are more likely to enter into the CAT

Dictatorships with parties have higher levels of torture

To put this plainly: holding other things equal… For every 100 observations of dictatorships with no political parties and low levels of torture during a year, one can expect 7 of them to practice high levels of torture the following year (plus or minus 4). For every 100 observations of dictatorships with political parties and low levels of torture during a year, one can expect 14 of them to practice high levels of torture the following year (plus or minus 6). I conclude that torture is, somewhat counter-intuitively, more prevalent in dictatorships with multiple political parties.

Dictatorships with parties are more likely to sign/ratify the CAT

Ratifying the CAT

The story explains… Why governments with more torture enter into the CAT: –We observe more torture because power is divided (political parties). –Governments enter the CAT as a concession to the interest groups represented in the political parties. Why governments without torture do not enter the CAT: –There is less torture because there is more fear of torture. –The last thing these regimes–that rely on fear–want to do is make a gesture that they oppose torture. –These regimes are not anti-torture, and face no pressure to enter into the CAT.

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