Understanding Interactions in Social Networks and Committees

While much of the literature on cross section dependence has focused mainly on estimation of the regression coefficients in the underlying model, estimation and inferences on the magnitude and strength of spill-overs and interactions has been largely ignored. At the same time, such inferences are important in many applications, not least because they have structural interpretations and provide useful interpretation and structural explanation for the strength of any interactions. In this paper we propose GMM methods designed to uncover underlying (hidden) interactions in social networks and committees. Special attention is paid to the interval censored regression model. Our methods are applied to a study of committee decision making within the Bank of England’s monetary policy committee.

Expert Information and Majority Decisions

This paper studies dichotomous majority voting in common interest committees where each member receives not only a private signal but also a public signal observed by all of them. The public signal represents, e.g. expert information presented to an entire committee and its quality is higher than that of each individual private signal. We identify two informative symmetric strategy equilibria, namely i) the mixed strategy equilibrium where each member randomizes between following the private and public signals should they disagree; and ii) the pure strategy equilibrium where they follow the public signal for certain. The former outperforms the latter. The presence of the public signal precludes the equilibrium where every member follows their own signal, which is an equilibrium in the absence of the public signal. The mixed strategy equilibrium in the presence of the public signal outperforms the sincere voting equilibrium without the public signal, but the latter may be more efficient than the pure strategy equilibrium in the presence of the public signal. We suggest that whether expert information improves committee decision making depends on equilibrium selection.

Mafia in the ballot box

We study the impact of organized crime on electoral competition. Assuming that the mafia is able to bring votes to the supported party in exchange of money, we show that (i) the strongest party is willing to pay the highest price to secure mafia services; (ii) the volume of electoral trade with the mafia increases with political competition and with the efficiency of the mafia. Studying in detail parliamentary elections in Sicily for the period 1946- 1992, we document the significant support given by the Sicilian Mafia to the Christian Democratic party, starting at least from the 1970s. This is consistent with our theoretical predictions, as political competition became much tighter during the 1970s and the Sicilian mafia experienced an extensive centralization process towards the end of the 1960s, which increased substantially its control of the territory. We also provide evidence that in exchange for its electoral support the mafia got economic advantages for its activities in the construction industry.

Factors Affecting Audit Quality in the 2007 UK Regulatory Environment: Perceptions of Chief Financial Officers, Audit Committee Chairs and Audit Engagement Partners

In line with global changes, the UK regulatory regime for audit and corporate governance has changed significantly since the Enron scandal, with an increased role for audit committees and independent inspection of audit firms. UK listed company chief financial officers (CFOs), audit committee chairs (ACCs) and audit partners (APs) were surveyed in 2007 to obtain views on the impact of 36 economic and regulatory factors on audit quality. 498 usable responses were received, representing a response rate of 36%. All groups rated various audit committee interactions with auditors among the factors most enhancing audit quality. Exploratory factor analysis reduces the 36 factors to nine uncorrelated dimensions. In order of extraction, these are: economic risk; audit committee activities; risk of regulatory action; audit firm ethics; economic independence of auditor; audit partner rotation; risk of client loss; audit firm size; and, lastly, International Standards on Auditing (ISAs) and audit inspection. In addition to the activities of the audit committee, risk factors for the auditor (both economic and certain regulatory risks) are believed to most enhance audit quality. However, ISAs and the audit inspection regime, aspects of the ‘standards-surveillance compliance’ regulatory system, are viewed as less effective. Respondents commented that aspects of the changed regime are largely process and compliance driven, with high costs for limited benefits, supporting psychological bias regulation theory that claims there is overconfidence that a useful regulatory intervention exists.