Understanding Privatisation Policy: Political Economy and Welfare Effects

1. 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

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 • 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

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. 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 database:political fragmentation • 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. 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:ideology

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

16. 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)