Leech, Dennis (1998) Power relations in the International Monetary Fund: a study of the political economy of a priori voting power using the Theory of Simple Games. Working Paper. University of Warwick. Centre for the Study of Globalisation and Regionalisation, Coventry.

Preview

PDF WRAP_Leech_wp0698.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (1009Kb)

Abstract

In general in organisations whose system of governance involves weighted majority voting, power and voting weight differ. Power indices are a value concept for majority voting games which provide a means of analysing this difference. This paper provides new algorithms for computing the two classical power indices (the Banzhaf index and the Shapley-Shubik index) and applies them to the voting distribution in the two governing bodies of the IMF in each year since its foundation. The focus is both substantive, being an analysis of the political economy of the IMF, and methodological, as a study of the use of the power indices. Power relations are studied with respect to two types of decisions: ordinary decisions requiring a simple majority and decisions requiring a special majority of 80% or 85%. Clear cut results are obtained for the former: among the G5 countries discrepancies between power and voting weight have declined over time with the exception of the United States which continues to have much more power than its weight even though that weight has declined. In the nineteen forties the United Kingdom’s power was considerably below its relatively large nominal voting power, similarly to some extent for France. Both power indices give results which are qualitatively comparable. For decisions requiring special majorities, however, few general results emerge because of conflict between the indices. We examine the effect of the size of the majority requirement on the power of the leading members and find that the power of the US declines as the majority requirement increases. This result confirms the warnings of Keynes that the US insistence on retaining a national veto for itself might be counterproductive. We conclude that the special majority requirement creates a distortion in the voting system which can be regarded as a serious lack of transparency. We also examine the effect of the EU countries voting as a block rather than individually and show that it would be dominant and the US power would fall considerably. We conclude that it is not possible to make a clear choice between the two power indices used but that there is some indication that the Banzhaf index may be more plausible.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory J Political Science > JF Political institutions (General)
Divisions:	Faculty of Social Sciences > Economics Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
Library of Congress Subject Headings (LCSH):	International Monetary Fund, Voting research, Corporate governance, Keynesian economics
Series Name:	Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)
Publisher:	University of Warwick. Centre for the Study of Globalisation and Regionalisation
Place of Publication:	Coventry
Date:	May 1998
Number:	No.06/
Number of Pages:	69
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	Banzhaf, John F (1965), “Weighted Voting Doesn’t Work: A Mathematical Analysis”, Rutgers Law Review, 19(1965), 317-343 Brams, Stephen J. (1975) Game Theory and Politics, Free Press. Brams, Stephen J. and P J Affuso (1976), “Power and Size: A New Paradox”, Theory and Decision, 7, pp 29-56. Coleman, James S (1971), “Control of Collectivities and the Power of a Collectivity to Act,” in Social Choice, (Lieberman, Ed.), pp 277-287, Gorden and Breach. Dreyer, Jacob S and Andrew Schotter (1980), “Power Relationships in the IMF: the Consequences of Quota Changes,” Review of Economics and Statistics, vol. 62, no. 1, pp .97-106. Felsenthal, Dan S. and M. Machover (1995), “Postulates and Paradoxes of Relative Voting Power - A Critical Re-Appraisal,” Theory and Decision, vol. 38, pp. 195-229. Gold, Joseph (1972), Voting and Decision in the International Monetary Fund: An Essay on the Law and Practice of the Fund, IMF, Washington DC. Gold, Joseph (1972), “Weighted Voting Power: Some Limits and Some Problems,” American Journal of International Law, vol. 68, pp. 702-804. Gold, Joseph (1981), “The Origins of Weighted Voting Power in the Fund”, Finance and Development, March 1981, pp. 25-28. Keynes, John M. (1943a), Speech to House of Lords, 18 May 1943, in D. Moggridge, The Collected Writings of John Maynard Keynes, Cambridge University Press, 1980, vol. XXV, p. 278. Keynes, John M. (1943b), Letter to J Viner, 12 July 1943, in D. Moggridge, The Collected Writings of John Maynard Keynes, Cambridge University Press, 1980, vol. XXV, p. 328. Leech, Dennis (1988), “The Relationship between Shareholding Concentration and Shareholder Voting Power in British Companies: A Study of the Application of Power Indices for Simple Games,” Management Science, 34, 509-527. Leech, Dennis, (1990), “Power Indices and Probabilistic Voting Assumptions”, Public Choice, 66, 293-299. Leech, Dennis, (1992), “Empirical Analysis of the Distribution of A Priori Voting Power: Some Results for the British Labour Party Conference”, European Journal of Political Research, 221, 245-265. Leech,Dennis (1998), "Computing Values for Large Games and Games with Incomplete Information," mimeo, University of Warwick. Lucas, W F (1983), “Measuring Power in Weighted Voting Systems,” in S Brams, W Lucas and P Straffin (eds.), Political and Related Models, Springer. Owen, Guillermo (1972), “Multilinear Extensions of Games,” Management Science, vol. 18, no. 5, Part 2, P-64 to P-79. Owen, Guillermo (1975), “Evaluation of a Presidential Election Game,” American Political Science Review, vol. 69, pp. 947-53. Owen, Guillermo (1995), Game Theory,(3rd Edition), Academic Press. Roth, Alvin E. (1977), “Utility Functions for Simple Games,” Journal of Economic Theory, vol. 16, pp. 481-489. Roth, Alvin E. (1988), The Shapley Value, Cambridge U.P. Sadako, Ogata (1989), “Shifting Power Relations in Multilateral Development Banks,” The Journal of International Studies (Institute of International Relations, Sophia University, Tokyo), Number 22, January, 1-25. Shapley, L. S. and M. Shubik (1954), “A Method for Evaluating the Distribution of Power in a Committee System,” American Political Science Review, 48, pp 787-792. Straffin, Philip D. (1977), “Homogeneity, Independence and Power Indices,” Public Choice, vol. 30, pp.107-118. Straffin, Philip D. (1994), “Power and Stability in Politics,” in R.J.Aumann and S.J.Hart (ed.), Handbook of Game Theory (Vol. 2), Elsevier, pp. 1128-1151. Strand, Jonathan R., David P. Rapkin and David B. Wood (1997), “The Political Economy of A Priori Voting Power in the World Bank and IMF,” paper presented at the Annual Meeting of International Studies Association, Toronto, March 18-22, 1997. Widgren, Mika (1994), “ Voting Power in the EC Decision Making and the Consequences of two Different Enlargements,” European Economic Review, vol. 38, pp. 1153-1170. Williams, Marc (1994), International Economic Organisations and the Third World, Harvester Wheatsheaf. Zamora, Stephen (1980), “Voting in International Economic Organizations,” American Journal of International Law, vol.74, pp 566-608.
URI:	http://wrap.warwick.ac.uk/id/eprint/2119

Request changes to a record

Actions (login required)

View Item