1. 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

2. 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)

3. 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.

4. 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.

5. 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)

6. 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

7. 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)

8. 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

9. database: political fragmentation effective number of parties (gov. and parl.) electoral dis-proportionality

10. database: political fragmentation

11. 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)

12. 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

13. database: accuracy

14. 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

15. empirical test: timing of privatization

17. 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)