Society for Institutional & Organizational Economics
Conference papers from 2014 (sessions were not tracked for this year)
The Office of Information and Regulatory Affairs (OIRA), in the Office of Management and Budget, is the locus for centralized presidential efforts to control agency rulemaking. To do so, OIRA selectively audits and then orders revision of the regulations proposed by agencies. To analyze OIRA's auditing decision we begin by formally modeling its strategic problem. The model distinguishes situations when cost-benefit analysis speaks definitely and thus constrains the scope for ideology, from those in which it is somewhat ambiguous and thus fails to constrain ideology. In such cases, liberal agencies may be eager regulators and conservative agencies reluctant ones. Auditing strategies for liberal and conservative presidents should reflect these tendencies. The model also identifies agency responses to auditing regimes: "deterrence" and "chilling" effects on the production of regulations but also "stimulative" effects. We then assemble data on 20,279 proposed rules promulgated by 35 agencies from 1995-2010. Under Bush, OIRA's average of 278 audits per year disproportionately targeted regulations from liberal agencies, particularly intrusive regulations from those agencies. Under Clinton, OIRA's average of 296 audits per year did not display ideological targeting. Similarly, under Obama, OIRA's 95 audits per year displayed no ideological targeting.
In the 1980s, the institutional and regulatory framework of the telecommunication industry has changed radically but a lot still remains to be done notably in developing countries. MENA developing countries are presently experiencing a significant transformation in their telecommunication sectors due to the regulatory reform, the privatization, and the introduction of competition. Under the pressure of International Institutions (World Bank, IMF), the liberalization, deregulation and re-regulation of the telecom industries are at the political agenda of MENA governments. This paper empirically assesses the effect of regulation, privatization and competition reforms, as well as the interactions between different reforms in the telecommunication sector using a sample of 17 MENA developing countries for the period 1995-2010. We assume that different reform variables are affected by institutional, political and economic variables and we use IV-2SLS estimation to analyze the outcome of reforms in terms of telecom performance: access, prices and productivity. As a main result, we find that institutional, political and economic variables matter and affect telecom reforms, which in turn affect different performance indicators.
Judicial decisions, particularly those by high courts, have two separate effects: They resolve a particular dispute and they announce a legal rule that justifies this resolution. In this paper, we consider the micro-foundations of judicial preferences over legal rules. We argue that while judges may care about legal rules for a number of reasons, one reason is that legal rules shape the resolution of future cases. As a result, a judge prefers those rules that she expects will make more cases come out ``right'' (from her perspective) to those that she expects will make fewer cases come out ``right.'' We demonstrate that if this is true, judicial preferences over rules will typically be asymmetric: A judge will be sensitive to deviations from her preferred rule if such deviations affect many future cases, while she may be willing to tolerate significant departures from her preferred rule if this departure does not affect many cases. We show that the direction and degree of this asymmetry are endogenous to the location of the judges' ideal points. Finally, we demonstrate that such asymmetric preferences can have important consequences for the legal rules that emerge from collegial courts, as well as for the nature of the coalitions that support a decision.
The main theme in the evolution of social behavior is how cooperation between organisms can emerge in the face of conflicts of interests. Political science studies cooperation and conflict, and the socio-political structures these produce in the most socially complex animal, humans. In particular, political scientists have long studied how political, economic and social institutions affect human behavior, and how these institutions change over time. We argue that this institutional approach can be applied fruitfully to the evolution of animal behavior. The institutional approach goes beyond the conventional focus on studying the evolution of individual strategies in a given social setting to studying how the social interaction itself is set up. We identify several areas of institutional theory that have immediate applications to biological problems and suggest future avenues for theoretical and empirical research at the interface of social science and biology.
We document the evolution of innovation-related supplier relationships in an industry that has witnessed a dramatic rise in offshore outsourcing and the emergence of a multitude of specialized suppliers over the past decade. Through analysis of a comprehensive and detailed dataset of supply relationships for the design and manufacture of all mobile handsets introduced worldwide from the beginning of the outsourcing trend, we explore the evolving logic guiding supplier choice in this industry.
British judges in general, and British high court judges in particular, are perceived to be independent and isolated from political pressure and interference. Furthermore, the rate of unanimous decisions tends to be particularly high in English courts of last resort. This has led many scholars to consider that, contrarily to what holds for many other courts around the world (such as the US Supreme Court), the attitudinal model does not find support when British higher court judges are considered. In this paper we discuss one British court of last resort that has been less studied in the literature: the Judicial Committee of the Privy Council. This court is the highest judicial authority for a few cases in the United Kingdom and for many Commonwealth jurisdictions. Traditionally, this court deals with Commonwealth appeals as well as a limited number of domestic cases. Following the three Devolution Statutes in 1998 (from Scotland, Northern Ireland and Wales), the Judicial Committee of the Privy Council also decided appeals concerning devolution issues (that is,cases concerning the extent to which the devolved governments or legislatures went beyond their powers). We study empirically the decisions of the Judicial Committee of the Privy Council and investigate the extent to which Commonwealth and devolution appeals induce different judicial behavior. We construct a dataset of 341 decisions ruled upon during the period from 1998 until 2011. Our results indicate a higher polarization of judicial behavior in the context of devolution (as measured by separate opinions) but no other consistent evidence of significant differences across types of cases (devolution, Commonwealth and domestic). We discuss these results in the context of the comparative judicial politics literature and the role of courts in the common law world.
This paper proposes two hypotheses on the publicity requirement and the limitations of possession to provide information for legal titling. It then tests these hypotheses by examining how legal systems deal with possession in movable and immovable property, and comparing actual and documentary possession. It concludes that exercise of possession is effective as a titling mechanism when it is observed by independent parties, thus providing publicity and verifiability of titling-relevant elements. However, given that possession is only effective to inform about a single in rem right, direct and automatic reliance on possession for titling requires that all other rights be diluted to in personam status or be burdened by the possessory in rem right. In any case, public knowledge of possession, either in its delivery and/or its exercise, is essential for possession to play a public titling function. Similarly, documentary possession is only effective as a public titling mechanism in the absence of multiple rights in rem.
I analyze the basis of the market economy in classical Rome, from the perspective of personal-versus-impersonal exchange and focusing on the role of the state in providing market-enabling institutions. I start by reviewing the central conflict in all exchanges between those holding and those acquiring property rights, and how solving it requires reducing information asymmetry without endangering the security of property. Relying on a model of the social choice of institutions, I identify the demand and supply factors driving the institutional choices made by the Romans, and examine the economic circumstances that influenced these factors in the classical period of Roman law. Comparing the predictions of the model with the main solutions used by Roman law in the areas of property, business exchange and the enforcement of personal obligations allows me to propose alternative interpretations for some salient institutions that have been subject to controversy in the literature, and to conclude with an overall positive assessment of the market-enabling role of the Roman state.
We examine the consequences of an organizational reform in Israel that transferred the responsibility for housing arrestees from the Police to the Prison Authority. Using the staggered rollout of the reform in di fferent regions of the country, we document strong evidence that this organizational change led to an increase of 11 percent in the number of arrests and to a decrease of 4 percent in the number of reported crimes, with these eff ects concentrated in more minor crimes. The reform also led to a decrease in the quality of arrests, measured by the likelihood of being charged following an arrest. These findings are consistent with the idea that the reform externalized the cost of housing arrestees from the Police's perspective, and therefore led the Police to increase its activity against crime.
I analyze an economic mechanism that captures the idea that competition in the political arena helps good economic outcomes. In the model, heterogeneous agents can choose to appropriate others’ resources. A qualified electorate votes over proposals by two candidate office holders to determine the property rights enforcement regime. The outside option in the political game is being a citizen under the opponent’s regime and is generally better for more productive candidates. That is why the less productive candidate wins the election. He implements a regime that depends on the loser’s productivity. As a consequence, two societies with the same productivity distribution and the same office holder, but electoral runners-up with different productivity, face different alternatives and choose different levels of enforcement. The less productive the loser, the more constrained is the office holder and the better is enforcement and the economy’s outcome–with more secure property rights, more economic activity, and higher welfare. Easier access to the political arena for more people increases the likelihood of better outcomes while extending the franchise alone does not.
The paper studies the impact of tight government budget constraint on corruption. Government without adequate funding to finance its basic public services allows its employees to complete their income with bribes. It is not the same whether the complements come from capture or extortion: Extortion is less costly for the government than capture. When public budget constraints become tighter, administrations hence progressively shift from a capture-proof regime (e.g., presumption of innocence) to a regime of extortion (e.g., burden of the proof). It implies that in countries where public finances are high, corruption is low, and it rather takes the form of capture. Administrations are efficiently run. In countries where the government faces severe budget constraints, corruption is high, and takes the form of extortion. Administrations are composed of rent seekers who do not provide much effort. In the limit they become purely predatory and the government behaves exactly like a mafia. Empirical evidences are consistent with these predictions.
The feasibility of microfinance institutions (MFIs) to expand outreach to the poorest while remaining financially sustainable has long been debated. Using data from 206 MFIs in 33 African countries, we adopt the three-stage least square technique to examine if a trade-off exists between sustainability and outreach depth. Our results confirm the existence of a trade-off. The evidence also supports ongoing subsidies for MFIs with the aim of encouraging outreach. In addition, we examine whether there is an inflection point beyond which higher interest rates reduce profitability for MFIs. We find no evidence of a threshold beyond which profitability is reduced.
One of the most vital debates in franchise law focuses on whether states or federal law should adopt “good cause statutes” (GCSs), which require franchisors to show “good cause” before terminating contractual relations with a franchisee. The traditional law and economics analysis suggests that GCSs are inefficient. This inefficiency argument is based upon one central hypothesis: GCSs increase franchisee free riding since they limit the franchisor’s ability to terminate the franchise contract easily. The free riding hypothesis has been significantly influential in the development of franchise law, as is evident in state and federal statutory regimes. To date, the majority of states and the Federal government have refused to adopt GCSs. This paper investigates the free-riding hypothesis empirically, and finds it wanting. Direct examination of consumer satisfaction in one of the industries most notoriously susceptible to free-riding, hotels serving non-repeat travelers, shows no significant differences between franchises subject to ‘at will’ laws and those subject to a GCS. We gathered a sample of 3,442 franchised hotels, measured each one along several dimensions of quality, and assessed potential differences using multiple econometric methods. In none did the ‘at will’ states outperform the ‘good cause’ ones. Implications of our empirical results on the debate over GCSs are discussed. We suggest a more nuanced approach to the enactment of GCSs and the debates surrounding it. In any case, one argument can no longer be made: that GCSs increase franchisee free-riding. The customers of hotels in our sample say otherwise.
We examine a dynamic model of appellate court lawmaking that incorporates review of trial court dispositions. We consider two types of trial courts: realist and legalist. Realist trial courts want to get their preferred disposition subject to the threat of reversal. Legalist trial courts, by contrast, exert effort analogizing their case to one of two existing appellate court precedents (a "liable" precedent and a "not liable" precedent). Distant analogies are more expensive for the legalist trial court to make than close analogies. Each period, the appellate court audits trial court dispositions. A successful audit provides an opportunity to create precedent. Precedent changes future trial court dispositions by providing new cases from which the legalist trial court can draw analogies. This, in turn, alters the appellate court's scrutiny of these dispositions -- its audit strategy -- going forward. We use the model to provide an account for affirmances with opinions, the practice of dicta, and to explore how appellate scrutiny will differ depending on the appellate court's hunch of the likely merits of the lower court disposition. We also demonstrate how settlement of cases before appeal can improve the performance of appellate review. Throughout, we relate the findings to existing evidence and derive testable predictions
Labor-market institutions determine how firms and workers match to one another. In this paper, I argue that generous unemployment insurance protects workers against liquidity shocks and so induces superior matching with firms. Better matching has limited returns if firms can offer effective formal bonus contracts to their workers. In contrast, better matching leads to large returns if firms cannot use formal contracts and so must motivate their workers using long-term relational contracts. As a consequence, a country may implement generous unemployment insurance policies in order to cultivate firms that rely on relational contracts. If contracting technologies vary across industries, then ex ante homogeneous countries may optimally choose different levels of unemployment insurance to acquire absolute and comparative advantage in different sectors of the economy.
The Coase Theorem predicts that, if there are no transaction costs, parties will always contract their way to an efficient outcome. Thus, no matter which legal rules society chooses, “Coasean bargains” will lead to efficient results. There are always some transaction costs. However, transaction costs are often thought to be low when there are no structural impediments to negotiation, such as large numbers of parties or barriers to communication. When these obstacles are not present, it is commonly assumed that the parties will achieve an efficient result through Coasean bargaining. We show that this assumption is incorrect. In particular, we demonstrate that transaction costs can be high, even when there are no structural impediments to bargaining, because the parties themselves may intentionally create transaction costs. Intuitively, an individual may prefer the Coasean bargain that is struck when certain parties are excluded from negotiations. Accordingly, that individual will wish to create transaction costs that keep those parties—potentially including herself—away from the negotiating table. We show that there are many contexts in which the parties will choose to create these “voluntary transaction costs,” including environmental litigation, multilateral treaty negotiations, and creditor-debtor relationships. Because of the prevalence of voluntary transaction costs, Coasean logic applies to a significantly smaller class of cases than has previously been recognized. This renders law very important: Legal rules provide the starting point for the parties' negotiation; we find that when the parties’ starting point is closer to the efficient result, they are more likely to achieve an efficient outcome through Coasean bargaining. This insight favors reasonable use rules and other legal rules that attempt to assign entitlements in an efficient manner. We also find that liability remedies are more likely to encourage efficient outcomes than injunctive remedies are.
Do cabinet ministers influence government decisions in presidential coalition governments? Coalition governments in presidential systems imply a principal-agent problem in which ministers are agents of the president and of their own party. The problem the president faces is to reduce policy drift, while ministers act to maximize electoral returns of government participation. The main hypothesis is that the greater the ideological distance between the president and the minister, the lower the minister’s influence over Executive decisions. An original dataset about ministerial influence over legislative agenda and budget allocation in Brazil (1995-2010) is used. The main result is that ideological distance reduces ministerial influence and that legislative decisions are concentrated in the president's party while budget allocation is shared with coalition partners.
A large body of literature has demonstrated that international action can promote the successful resolution of civil wars. However, international actors do not wait until violence starts to seek to manage conflicts. We argue that different actions of the United Nations Security Council—including condemnations, sanctions, various forms of diplomatic engagement, and the authorization of force—can make civil wars less likely. We test this argument by examining how the content of UN Security Council resolutions in all disputes over self-determination from 1960 to 2005 affect whether these disputes escalate to civil war and find that UN action can have a substantial preventive effect. Specifically, we find that diplomatic actions that directly address a self-determination movement of concern can reduce the likelihood of a subsequent armed conflict. We also find that coercive actions of military force and sanctions have more indirect preventive effects.
Registries are crucial and under-theorized. Registries can enhance or erode the value of property rights; sometimes, they create rights that would not have existed without them. Furthermore, registries and title information constantly reshape the configuration of assets. We analyze the intricate relationship among title information, rights and assets in the domain of property, as mediated by registries. We highlight the triple role that registries perform for property owners. They simultaneously perform a facilitative role by easing transactions between willing sellers and buyers, an obstructive rule by hindering non-consensual encroachments and takings of assets, and an enabling function by allowing owners to locate and use their own lost assets. Additionally, we posit that perfect registries, even if possible, are undesirable. Perfect information about assets and legal rights may result in the destruction, dismembering and mutilation of the asset by non-consensual takers to make the asset unrecognizable, as exemplified by “chopped” stolen cars, or, conversely, to attempts to engage in “identity theft” in order to give thieves the benefit of the registered rights. Relatedly, we argue that the registries are desirable when it is impossible or difficult to alter the defining characteristic of the underlying asset. This explains why there are registries for non-transformable assets, such as land, but not for transformable assets like mass production goods and many natural resources. Finally, we address the question of which rights should be covered by registries and how much legal deference should be given to them. Our framework is significant for practical reasons as well. For example, our analysis sounds a cautionary note as to the ability of registries of copyrighted works to curb unlawful appropriation and distribution.
This paper examines the conditions that turn business violent. Few studies have been conducted that develop theories linking entrepreneurial activities and violence as well as engage micro-level data to test them. In countries where institutions providing political accountability and protection of property rights are weak, and at least some elite actors (for example, organized criminal groups) accept the use of violence as a tool in political and economic competition, entrepreneurs may find it worthwhile to run for office in order to secure privileged status. These privileges protect them from being physically attacked and their assets from being expropriated by competitors who, if elected, would control local executive and legislative institutions, as well as law enforcement system and courts. Due to these risks, businessmen-candidates may become exposed to competitive pressures resulting in violence during election years. To test whether provincial elections indeed cause spikes in commerce-motivated violence, this project relies on an original dataset of more than 6,000 attacks involving business interests in 74 regions of Russia, in 1991-2010. The results show that only legislative elections cause increases in violence while there is no evidence that executive polls have a similar effect.
In this brief paper we introduce a rigorous definition of political acceptance that we offer as an alternative or complement to the long standing concept of political legitimacy relied upon in political science. It has four important features: it is a positive not a normative concept; it is an encompassing concept; it is capable of direct measurement with survey data; and it has a stock or reservoir of goodwill feature that allows differentiation between political acceptance of a system and of a regime. The first three features represent a conceptual improvement over the concept of political legitimacy. The fourth feature is analogous to one possessed by political legitimacy that is useful for empirical analyses. We develop two questions that make feasible direct measurement of these concepts for acceptance and two versions of political legitimacy a la Lipset with survey data on individuals. These questions are implemented with survey data from 36 countries as part of the Rule of Law Index surveys developed by the World Justice Project. We establish an empirical pattern where political acceptance of a system is consistent with its being a buffer for political acceptance of a regime in each of the very diverse 36 countries in our data. We compare empirically political acceptance to two versions of political legitimacy a la Lipset. We find that political acceptance outperforms both measures of legitimacy in a majority of countries either as an alternative or a complement to either measure of legitimacy a la Lipset in explaining acts of civil disobedience. We relate the concept to the vast literature on political legitimacy in the introduction and summarize in brief concluding remarks.
Private-order market institutions founded on trust-based relational contracts suffer adverse selection and moral hazard problems, while public-order market institutions have a limited capacity to enforce contracts. We model agent selection between contract enforcement institutions and demonstrate that the state's contract enforcement capacity is complementary to private-order contract enforcement institutions. This suggests that improvements to public-order institutions cause the accumulation of trust and result in economic growth in both institutions. We discuss the robustness of our findings to different political institutions. Our predictions are illustrated by regressing generalized trust against proxies for public-order contract enforcement capacity.
Following the Sarbanes-Oxley Act of 2002, businesses struggled to comply with new requirements for auditor independence and financial reporting. While the law was burdensome to firms it was a boon to legal professionals, who were granted a longer statute of limitations for fraud claims and more opportunities to pierce the corporate veil. Using a dataset of closed insurance claims against directors and officers, I document a spike in case settlements following Sarbanes-Oxley. In 2003, the expected value of lawsuits against directors and officers jumped dramatically and a flood of cases followed. Using record of case settlements, I find that many of the post-Sarbanes-Oxley cases were of low quality and the chance of a successful plaintiff settlement rapidly declined from 2005 to the present, but the cost of fighting those lawsuits increased.
Sellers have long engaged in various forms of price discrimination. However, recent technological advances have given sellers even more information about their customers including the ability to track people across shopping episodes. With such information they can either attempt to reward loyalty or poach from rivals. In addition, recent theoretical work suggests that loyalty discounts are likely to be implemented when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise repeat buyers can be expected to pay the same or more than new buyers. The paper reports the results of a series of market experiments, which vary the degree of heterogeneity in shopper preferences between periods and the ability of sellers to pre-commit to prices for loyal customers. The results of our experimental study generally support the comparative static results of the theoretical model, although there is less difference between prices in different treatments than predicted. This paper is part of a research project OP Education “Increasing the quality of doctoral studies and support of the international research at the FNE, University of Economics in Bratislava” (ITMS 26140230005), Modern education for knowledge society (co-financed by the European Union); research grant VEGA No.: 1/0232/13 and research grant VEGA No.: 1/0431/14 provided by the Ministry of Education, Science, Research and Sport of the Slovak Republic.
Established in 1865, the International Telegraph Union, which became the International Telecommunication Union in 1932, has been successful until the early 1990’s in being the core organization in the regulation and coordination of the global telecommunication infrastructure. However, the ITU missed to a large extent the Internet/Digital revolution. The governance of the global information infrastructure is presently in the hands of a wide, and often loose, network of state and non-state actors interacting in an on-going process of norms settlement taking place in various overlapping forums…in which the ITU is a simple stakeholder. The new context can be interpreted along three lines. The technological one would state that the decentralized logic of the Internet architecture marginalized the states in the regulatory game, as public regulations can be bypassed in many ways by the (united or not) users. The civic one relies on the idea that digital technologies are able to sustain new forms of more participative, horizontal, inclusive governance; the later being also characteristic of post-modern societies based on reflexive and multi-stakeholders governance. The last approach considers institutional arrangements as resulting from decentralized processes of promotion and of adhesions to common norms. The dynamic of the building of the governance systems that shape the (global) digital infrastructure and the information society, can largely be analyzed as the result of a process by which the US Federal Government and a network of others, hand-in-hand with a set of firms and non-state actors, played a strategy favoring the diffusion of technologies and economic models ensuring an enduring leadership
This paper examines CEO compensation in 43 countries from the 1996 to 2009 period and focuses on how national culture affects contracting decisions. Our empirical analysis documents that cultural factors (measuring such societal traits as individualism and uncertainty avoidance) are significant determinants of the relative use of equity-based compensation. These factors are highly significant after controlling for the previously-identified determinants of compensation structure relating to legal environment and firm-specific characteristics. By empirically verifying the strong relation between culture and compensation, we hope to contribute to a more comprehensive understanding of the interaction between informal institutions and corporate decision-making.
Real estate prices in cities like San Francisco are far above the cost of construction, with regulatory restrictions on development cited as a likely explanation. In this paper we use a natural experiment setting to test this hypothesis and estimate the cost of zoning: the implicit tax that results when zoning regulations limit development within a city. After the 1906 fire, residential land in the burned portion of San Francisco was rebuilt at much greater densities, thus causing differential density patterns to arise across burned and unburned areas. These patterns were then locked into place by the 1921 zoning code and exist to the present day, a feature that allows us to utilize the fire's boundary as an exogenous source of variation in the zoning code. Using a border discontinuity approach, we analyze the effect of dense zoning on land prices in transactions involving single family homes, which have greater potential to be redeveloped for a different use and thereby benefit from less-restrictive zoning, relative to transactions involving condos. We find that zoning restrictions lead to an implicit tax of around $300 per square foot of land, with conservative calculations implying welfare losses of $4.45 billion per year--a substantial fraction of area annual income.
Political pressure is undoubtedly an important influence in the setting of trade policy and the formulation of trade agreements. Most of the literature models the political pressure that governments face as resulting from an exogenous, stochastic process. This paper shows that when political pressure arises endogenously, important results can be overturned and new insights into the motivation for features of the trade agreements we observe and rules of organizations such as the WTO come to light. Using a weighted Baldwin-style government objective function, I show that governments may want to use tariff caps both to force special interest groups to continue lobbying after a trade agreement is signed and to reduce the magnitude of that lobbying effort. Endogenous politics can destroy an escape clause's ability to provide flexibility in times of large negative political shocks when lobbies use the flexibility to seek rents. This can explain why use of WTO Safeguards are conditioned on measurable economic indicators as well as why Safeguard levels of protection are not regulated.
We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into layers using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding/dropping a layer is very positively/negatively correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, or output. The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages, in part by hiring less experienced employees, in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers, partly by hiring more educated employees.
The cattle beef activity appears in almost 75% Brazilian farms, becoming one of the main activities in rural areas, according to IBGE (2012). The production runs, on average, for 3 years (finishing cow-calf), and for this reason, it is essential to agricultural enterprises the standpoint of property. Feedlot arises as a great alternative to intensify production. Investments in feedlot depend on the intensive capital and involve greater risks of production. By the side of the industry with the expansion of the consumer market is need to provide quality meat, standardized and continuously, making this sector seek partnerships and contracts with cattle`s suppliers. Because of these risks and the uncertainty of the trade, the use of contracts between producers and beef industry has been growing in the last years. This article aims to analyze the determinants of contract between producers and slaughterhouses in Brazil. The data used to make this analysis were 669 questionnaires with Feedlots in the states of Goiás, Mato Grosso and Sao Paulo in Brazil. It was used the Tobit model to determine the main factors determining the use of contracts. The choice of the model mentioned occurs because the dependent variable (contract) take many values equal to zero. And this type of data leads to a corner solution very common in economics. Therefore the choice of the above model (Wooldridge, 2009). The results show that the variables cattle, machines, and prizes were statistically significant at 1%, and that the hypotheses H0, H1, and H3 can’t be rejected. That is when the greatest level of technology adopted, as well as the increased risk of production and cattle size, there is a quest for realization of contract between Feedlot cattle and beef industry. Already the hypotheses H2, H4 and H5 were rejected. The distance, the market price and the cost don’t interfere in the use of contracts in Brazilian case.
We document negative autocorrelation in judgment and decision-making in three field con- texts: refugee judges, baseball umpires, and loan officers. Previous research on the hot hand fallacy suggests that agents often think of sequential streaks of 0’s or 1’s as evidence of bias even though such streaks are likely to occur through flips of a fair coin. We hypothesize that the hot hand fallacy and active response to fairness perceptions lead agents to engage in cold hand, i.e. negatively autocorrelated, decision-making. A judge worried about becoming or appearing too lenient or tough if she issues a streak of affirmative or negative decisions may actively adjust her decisions in the opposite direction. We find evidence of negative autocorrelation, particularly among moderate decision-makers, and stronger effects after recent streaks of decisions and in situations when agents face weak incentives for accuracy. We show that our findings are un- likely to be driven by sequential contrast effects and we build a model suggesting the degree of coarse-thinking agents must engage in to explain our results.
Religious intensity as social insurance may explain why fiscal and social conservatives and fiscal and social liberals tend to come hand-in-hand. We find evidence that religious groups with greater within-group charitable giving are more against the welfare state and more socially conservative. The alliance reverses (social conservatives become fiscal liberals) for members of a state church and this reversal is unlikely to be driven by omitted environmental variables: increases in church-state separation precede increases in the alliance between fiscal and social conservatism. The theory provides a novel explanation for religious history: as elites gain access to alternative social insurance, they legislate increasing church-state separation to create a con- stituency for lower taxes. This holds if religious voters exceed non-religious voters, otherwise, elites prefer less church-state separation in order to curb the secular left, generating multiple steady states where some countries sustain high church-state separation, high religiosity, and low welfare state, and vice versa. We use this framework to explain the changing nature of religious movements, from Social Gospel to the religious right, and why church-state separation arose in the US but not in many European countries.
Despite a wealth of research on university incubators, science parks, and other attempts at commercialization, there is little consensus on the effectiveness of university-sponsored commercial innovation. We analyze the impact of incubators and other types of facilitators on the quality of innovations produced by US research-intensive academic institutions from 1969 to 2012. Using forward patent citations to measure the quality of innovation we show that establishing a university-affiliated incubator is followed by a reduction in innovation on campus, controlling for patent-, university-, and time-specific characteristics. The results hold when we control for the endogeneity of the decision to establish an incubator using the presence of incubators at peer institutions as an instrument. The results suggest that university incubators compete for resources with technology transfer offices and other campus programs and activities, such that the useful and commercializable outputs they generate can be partially offset by reductions in innovation elsewhere on campus.
It is recognized that the need for economic calculation places boundaries on firm size. However, much of the existing work focuses on the costs of market exchange rather than the costs of monitoring internal exchange. In this study, we examine the costs associated with a firm’s internal exchange of capital. We argue that firms dependent upon the financial markets for infusions of capital are likely to curtail sub-optimal investment policies to maintain a positive reputation in the eyes of potential investors. Conversely, firms with the ability to finance their investment with internally generated capital bear the costs of avoiding this external oversight. Larger firms have significantly more cash flow available after investment and are consequently less reliant on the external markets. With high levels of free cash flow, the unconstrained manager can socialistically fund investment projects by choosing to invest both in positive and negative net present value projects. Thus, we anticipate the efficiency of resource allocation within a corporate internal capital market is decreasing with the coincident levels of free cash flow and with firm size. Consistent with this view, we illustrate that the internal dependence on capital (and the associated costs) are indeed increasing in firm size. They are likewise increasing with the level of free cash flow available at the discretion of managers. We illustrate that these increased levels of free cash flow lead to suboptimal resource allocation in the form of cross-subsidizing and value-destroying investment activity, and ultimately to the deterioration of shareholder wealth. However, the free cash flow problem appears to be concentrated in mid-sized and large conglomerates which are less dependent on the external capital market. Smaller conglomerates funding investment with externally generated funds do not experience such deteriorations in wealth.
This paper analyzes the interaction between relational contracting and the quality of financial markets. I study a simple model in which a downstream firm (the buyer) sources components from an upstream firm (the supplier). The parties interact without the benefit of a formal contract and, due to imperfections in financial markets, the supplier has limited access to credit. The buyer is then required to cover a fraction of the investment cost. I characterize the whole set of efficient self-enforcing contracts and analyze how they are affected by the magnitude of the financing friction. If the supplier has strong bargaining power, less efficient financial markets may be beneficial to social welfare. If the buyer has strong bargaining power, on the other hand, less efficient financial markets are always welfare-reducing. The model also predicts that the productivity of the partnership increases with the length of the relationship. After a finite number of periods, however, the relationship “matures” and every efficient self-enforcing contract converges to a stationary agreement that maximizes social welfare among the class of all self-enforcing contracts. During the “transition phase”, investment decisions are distorted, resulting in either under- or over-investment. Over time, the inefficiencies decrease and investment monotonically approaches its first-best level.
This paper studies the effects of judicial institutions on investment and employment using an industry-by-industry approach, combined with the legal context of American Indian reservations. Using variation in legal institutions from a quasi natural experiment, better-understood courts lead to greater employment and more establishments among high-sunk-cost industries while having minimal effects on low-sunk-cost industries. The heterogeneity in effects across industries is consistent with the hypothesis that better-understood courts overcome a potential hold-up problem in contract negotiations. Beyond American Indian reservations, these findings suggest broad and wide-reaching effects of the nature of court systems on economic activity.
We study the impact of politicians' tenure in office on the outcomes of public procurement. To this purpose, we match a data set on the politics of Italian municipal governments to a data set on the procurement auctions they administered. In order to identify a causal relation, we apply two different identification strategies. First, we implement a Regression Discontinuity Design by comparing elections where the incumbent mayor barely won another term with elections where the incumbent mayor barely lost and a new mayor took over. Second, we cross-validate these estimates using a unique quasi-experiment determined by the introduction of a two-term limit on the mayoral office in March 1993. This reform granted one potential extra term to mayors appointed right before the reform. The main result is that an increase in the mayor's tenure is associated with "worse" outcomes: fewer bidders per auction, a higher cost of procurement, a higher probability that the winner is local and that the same firm is awarded repeated auctions. Taken together, our estimates are informative of the possibility that time in office progressively leads to collusion between government officials and a few favored local bidders. Other interpretations receive less support in the data.
Although experimentation is critical to the innovation process in startups, little research has explored the link between different experimentation strategies and entrepreneurial innovation. We use unique data on experimentation strategies and innovation outcomes of firms producing iPhone applications to show that the appropriateness of different strategies depends on market characteristics. Simultaneous experimentation strategies are better suited to markets characterized by strong market inheritance, where innovative know-how, development technologies, and heterogeneous preferences from established markets can be leveraged by entrepreneurs. In markets with fewer skills, fewer developmental technologies, and less understood demand expectations, innovations are more likely to result from sequential product improvements based on customer feedback, allowing the entrepreneur to develop skills and clarify what may be singular customer preferences.
In the wake of the recent financial crisis, incarceration alternatives are attractive because they are less costly, and may reduce recidivism and the social costs of crime. Despite widespread use, their effectiveness has largely escaped rigorous empirical evaluation. Incarceration alternatives are less immune to prison hardening and negative peer learning, and they also allow scholars to reconsider current definitions of incapacitation. While many define and measure incapacitation solely through incarceration, we argue for a continuous conceptualization, inclusive of non-carceral sanctions, which shapes important decisions in measuring incapacitation effects. One ideal setting to explore alternative sanctions is drunk driving, because of the variety of sanctions used to curb the behavior. Using quasi-experimental evidence, the article examines the effectiveness of sanctions in curbing recidivism and crashes with some 200,000 alcohol tests. Four key results emerge from the study. First, non-carceral sanctions offer promise in their effectiveness. Second, the channel through which the sanctions work is incapacitation, rather than specific deterrence. Third, the sanctions have varied success based on their form and whom they target. A law mandating victim panels, increasing license suspension length, and stimulating use of ignition interlock devices reduced crashes during and after a license suspension. The same law decreased recidivism during the suspension period, but the effects go away soon after. A suspension enhancement targeting those with higher intoxication neither reduced recidivism, nor crashes. Fourth, the probability of recidivism and crashes for first-time offenders given jail, fines, and a license suspension was not statistically distinguishable from those who received no sanctions. The paper offers mechanisms that explain the results, examines theoretical and legal reform implications, and discusses generalizing from the results to other legal domains.
When do voters punish corrupt politicians? Heterogeneous views about the importance of corruption can determine whether or not increased information enhances accountability. If partisan cleavages correlate with the importance voters place on corruption, then the consequences of information may vary by candidate, even when voters identify multiple candidates as corrupt. We provide evidence of this mechanism from a field experiment in a mayoral election in Brazil where a reputable interest group declared both candidates corrupt. We distribute 187,177 fliers in the run-off mayoral election in São Paulo. Informing voters about the challenger’s record reduced turnout by 1.9 percentage points and increased the opponent’s vote by 2.6 percentage points. Informing voters about the incumbent’s record had no effect on behavior. We attribute this divergent finding to differences in how each candidate’s supporters view corruption. Using survey data and a survey experiment, we show that the challengers’ supporters are more willing to punish their candidate for corruption, while the incumbent’s supporters lack this inclination.
Reducing income inequality is, in the eyes of many, one of the major political issues of this time. The conventional political approach to reduce income inequality is to raise taxes for the wealthy and redistribute the proceeds to the poor. This approach finds support in the economic literature, which postulates that redistribution through the tax system is more efficient than through the legal system. I argue instead that the legal system is intrinsically superior at reducing income inequality—at least to the extent that inequality is caused by rents (profits that would not have been earned in a perfectly competitive and transparent economy). The legal system is superior because it can address the specific market failures that make rents possible. This way, it can prevent income inequalities from occurring in the first place—an ex ante approach. The income tax system, by contrast, tries to correct the problem ex post—after it has already occurred. Rents can be analogized to implicit commodity taxes, the proceeds of which go to private individuals or companies rather than to the government. Just like explicit commodity taxes (with varying rates), they cause price distortion; and just like all explicit taxes, they cause labor distortion. Legal rules that reduce rents therefore reduce both price and labor distortion. Income taxes, by contrast, leave the price distortion unaffected and increase labor distortion (by being an overly broad instrument that treats income from rents and hard work alike). This finding has major implications. The first is that trade-offs between equity and efficiency should be made in the legal system whenever legal rules generate or reduce rents. The second is that rents (and windfalls) should be considered costs, rather than zero-sum effects, in law and economics models. As a result, many law and economics models may need to be revisited.
I argue that caveat emptor is no longer a fundamental principle in contract law; the principle that best explains the law is that of the least cost information gatherer (LCIG). Still, in practice, caveat emptor is more prominent in markets than it should be because courts do not consistently apply the LCIG principle. Courts err by underestimating which information is material (an error that is in turn caused by not fully understanding how search processes work in practice), by underestimating what type of statements effectively mislead buyers, by not systematically requiring efficient disclosure, or by mechanically applying per se rules (such as the opinion, value, or puffery rule) that are no more than proxies for other tests. As a result, caveat emptor is unintentionally re-introduced through the backdoor. Overall, markets would change fundamentally if the LCIG principle were consistently applied, as it should be. More specifically, the LCIG principle dictates that sellers (and service providers) should have a duty to publish their full price lists on the Internet; that it is up to producers (and not to consumers or consumer organizations) to finance quality tests; that insurers (and the sellers of related products, such as extended warranties) should reveal the actuarially fair price; that sellers should sometimes even reveal markups; that salespeople should reveal whether they give honest or biased advice and be held to fiduciary standards when they pretend to give honest advice; and that many common marketing and sales methods should become actionable for misrepresentation.
This paper is dedicated to the study of governances adopted by fuel distributors in their transactions with gas station retailers in the state of São Paulo. With the deregulation of the market, plural forms were allowed and have been a recurring presence. This paper argues that the plural forms found are transitory, not as a result of increased efficiency and reduced transaction costs, but because plural forms have become a key strategic step in securing business partners and promoting greater growth of the firm. Moreover, it is argued that the institutional environment has a significant influence on the coordination of plural forms, directly interfering with their stability.
Is the Philippine Supreme Court independent from the Executive branch? Using data from Haynie et al.’s (2007) High Courts Judicial Database, I compare how each of the ten Chief Justices from 1970 to 2003 decides cases involving the national government two years prior and two years after their appointment as Chief Justice, in a difference-in-differences framework. To verify whether differences could be due to selection bias from the possible non-random assignment of cases and strategic timing of decisions, I also verify whether panels that did not include the Chief Justice exhibit differences in behavior during the same four-year time periods. I find that they do not. In contrast, it is only the panels that include the Chief Justice which show some significant differences in the probability of favoring the government in its decisions pre- and post-appointment of the Chief Justice.
Access to consumer credit on American Indian reservations has been a longstanding concern and yet measurement of consumer credit on reservations is scarce and incomplete. This paper draws on a unique large-scale consumer credit database to provide the first encompassing quantitative picture of consumer credit in Indian country. We find that credit files on reservations are somewhat more likely to lack a credit risk score; in our data the Equifax Risk Score. Furthermore, Equifax Risk Scores and the use of certain forms of credit, especially mortgages, are low on reservations. However, usage of other forms of credit is not always low on reservations. Moreover, the gaps in credit usage on versus off reservations differ significantly across states and can change notably over time. Finally, race, age, education, unemployment, income, and the allocation of jurisdiction over legal matters are important predictors of consumer credit outcomes.
The 1920s U.S. prohibition of alcohol is notorious. Less well known is that the movement was international and that many countries went through vigorous struggles over the liquor issue. This paper investigates the case of New Zealand where prohibitionists were not as successful as in the U.S. To explain the difference, we have to compare the strength of the supporters and opponents of prohibition. These are clearly visible in prohibition referendums. For economists, referendums might be the closest measure of demand for a public policy. New Zealand is particularly interesting because no other country set up national prohibition plebiscites at every general election for almost eight decades, from 1911 to 1987. This paper focuses on the first seven referendums until 1928. Their results present unique features such as the number of votes by gender in 1911; the option of prohibition with compensation in 1919; and from 1919, state-control regime as a 3rd option. Such features make these data a rather rare set to investigate how different designs influenced voting patterns. In a political economy model, the shares of Yes, No and Abstentions are assumed to be determined by a set of socio-cultural factors such as religious affiliation, degree of heterogeneity of the population, rate of urbanization, social class, women’s participation and a set of economic interests like those of the liquor industries. Census data are normally used to estimate their impact. In the case of New Zealand, it is problematic as the Census data are highly disaggregated (more than 200 counties and boroughs) which makes it extremely difficult to match with the 68 electoral districts of the referendum votes. The Census data are also available at the provincial district level but there are only nine provinces, thus limiting the power of regression analysis. Nevertheless, it is still possible to verify and confirm important hypotheses of the prohibition and temperance literature.
Quality certification programs help consumers to identify high-quality products or sellers in markets with information asymmetries. Using data from eBay UK’s online marketplace, we study how certification’s impact on consumer demand varies with market- and seller-level attributes, exploiting quasi-experimental variation in sellers’ certification status. The positive effects of eBay’s “top rated seller” certification are stronger for categories with relatively few other certified sellers, in more competitive markets, and for sellers with shorter records of past performance. These findings indicate certification provides its greatest value when certification is rare, the product space is crowded, and for sellers lacking established reputations.
We provide experimental evidence for the hypothesis that bounded rationality is an important element of the theory of the firm. We implement a simplified version of a mechanism that was designed in order to perfectly solve the holdup problem under conditions of perfect rationality (Maskin 2002). We test whether this mechanism either is able to perfectly solve our experimental holdup problem or may at least improve economic performance. We show that neither is the case: the implementation of the mechanism worsens economic performance. We reconstruct the main features of participants’ behavior by applying the logit agent quantal response equilibrium (McKelvey and Palfrey 1998) as an equilibrium concept that takes players’ potential mistakes into account.
This paper shows that team formation can serve as an implicit commitment device to overcome problems of procrastination and self-control. In a situation where individuals have present-biased preferences, any effort that is costly today but rewarded at some later point in time is too low from the perspective of earlier periods. If agents interact repeatedly and can monitor each other, a relational contract involving teamwork can help to improve an agent's performance. The mutual promise to work harder is credible because an agent's punishment following a deviation -- a reversion to individual (under-) production in the future -- is rather unattractive from today's perspective. This holds even though the standard free-rider problem is present and teamwork renders no technological benefits. Moreover, we show that even if teamwork renders technological benefits, the performance of a team of agents with self-control problems can actually be better than the performance of a team of “normal” (fully time-consistent) agents.
Decennial redistricting is a critical element of American representative democracy. Previous studies have found that redistricting influences turnout and representation. From a public policy perspective, redistricting is also potentially subject to partisan gerrymandering. To address this concern, researchers have proposed numerous remedies including compactness and partisan symmetry requirements. However, there exist severe methodological challenges for the scientific evaluation of redistricting plans as well as the rules and constraints that govern the redistricting process. In particular, the number of possible redistricting plans grows exponentially as researchers consider smaller geographical units such as precincts and census blocks. To overcome this difficulty, we propose a flexible new methodology for simulating a representative sample of redistricting plans from a target population. We reformulate the task of drawing district boundaries as the problem of partitioning a graph into separate units. Based on this insight, we extend and apply a Markov chain Monte Carlo algorithm developed in the field of computer vision. Through simulation and empirical studies, we demonstrate that the proposed algorithm outperforms the existing approaches. Applying this new methodology, we examine the ability of various proposed criteria to limit partisan manipulation of redistricting.
As property rules “evolve” in the face of changing circumstances, courts and legislatures shape the process. Although recent theoretical work has articulated a tradeoff that can render either the judicial or legislative branch the preferable institution in which to vest rule-changing authority, empirical analysis of the subject remains scant. In this paper, we assemble a data set that enables us to study judicial and legislative modifications to a property rule – the benefit offset – that was widely employed by railroad companies during the 19th century to reduce required compensation for land taken through eminent domain. At the beginning of the railroad boom, all states allowed the benefit offset; by the end, most states had banned it, some via court decisions, others via legislation. We develop a theoretical model that allows for interaction between a court and a legislature, where both the court and the legislature act as (imperfect) agents of the public. The patterns apparent in the data support the model’s predictions: 1) challenges to the benefit offset generally began with litigation; 2) all states that litigated the offset eventually restricted it, but not always through litigation; 3) where courts chose to allow the offset, legislation restricted it, often with substantial lags; 4) the lags suggest not legislative ineffectiveness, but rather litigation launched when the offset was socially valuable (i.e., early in the track building process). Our model, econometric findings, and historical analysis show how giving both the court and the legislature the power to alter property rules establishes a redundancy that can expand the scope of rules the public will be willing to delegate.
Roman businessmen could choose between three legal forms for joint business ventures: the societas, the societas publicanorum, and the peculium of a commonly held slave. None of these forms led to larger firms with publicly traded shares. The high level of instability is one of the key explanations: it was difficult under Roman law to commit capital in the long term and finance capital-intensive enterprises. The societas was inevitably liquidated following numerous dissolution events. Members could withdraw their money at any time; their private creditors were not barred from seizing common assets. The peculium was even more unstable: in addition to the dissolution events of the societas, the joint venture came to an end and all items reverted back to the masters if the common slave died. It is true that the societas publicanorum developed into a more stable entity over time. However, during the same period, the business the societas publicanorum was limited to almost disappeared. Why did Roman law fail to provide organizational forms that allowed businessmen to commit capital in the long term? A closer analysis of Roman society suggests that the economic demand for more stable business associations was not great enough to overcome reservations in the social and political setting. This is an important lesson from history, both for the theory of the firm and for the role law plays in it.
We investigate complementarities between external uses of information technology (IT) and firm boundary decisions following the diffusion of the commercial Internet. Using detailed plant-level data covering roughly 2,500 establishments from the U.S. Census of Manufactures, we focus on the decision to allocate production output to either downstream plants within the same firm or to external customers. Using a differences-in-differences design, we find that IT-enabled coordination with external supply chain partners is associated with a significant decline in downstream vertical integration. Our results are robust to extensive time-varying controls for both internal and external downstream demand, as well as instrumental variables estimation. In addition, we find that the upstream and downstream uses of digital coordination are complementary to each other; the magnitude of the effect is greatest when both suppliers and customers are granted greater visibility into the focal plant’s operations.
In 1934 the US government passed significant legislation governing American Indian reservations, the Indian Reorganization Act (IRA). Adoption of the IRA was voluntary and tribes declining the IRA faced less federal oversight. This paper measures the impact of IRA adoption on current reservation development. To mitigate selection concerns, I exploit IRA voting results from the mid-1930s by restricting my analysis to tribes that held close elections. Empirical results using 1990 reservation-level census data indicate that IRA adoption stifled economic development. Per capita income is over 40 percent lower among IRA reservations. Educational differences and a disparity in racial integration explain a large fraction of the income differential. Legislation in the late 1980s reduced federal oversight; as a result these income differences diminish marginally by 2010. The results are robust to demographic, geographic, and resource endowment controls. These results indicate increased self-governance is necessary for development on Indian reservations.
Creative Commons (CC) licenses are increasingly used and the number of works under these licenses is growing. However, for each successful project there are many others that fail because they are unable to attract user contributions. Soliciting the contributions of users is a challenge for the management of a CC project. The aim of this paper is to shed light on the factors that contribute to the success of a CC project. To do that we develop an agent-based model that simulates the hidden dynamics of the production of CC works. This model is able to replicate stylized facts of CC production. Moreover, the model shows that characteristics of the CC project, such as the effort necessary to complete the project, the prestige of the producer, and its legal status are fundamental to its success.
Past research on the allocation of federal resources to localities has failed to take into account the interaction between federal and state governments. I address this gap by modeling the interaction as a sequential move game in which federal and state governments that are politically aligned (i.e., represented by politicians from the same party) have the same preferences over distribution of resources to localities. Instead, when these two levels of government are not aligned, they have different preferences. The main implication of the model is that the federal government increases funds to politically aligned local districts only when they are inside non-aligned states. Using expenditure data from the Census of Governments for 1982-2002, and a difference in differences strategy, I find that the main implications of the model are upheld in the data. Results are robust to many sub-samples, specifications, and alternative estimation methods. My findings have implications for normative studies of decentralization. In particular, the welfare impact of decentralization could depend on the strategic incentives it creates at various levels of government.
Debate over the public versus private-sector cost of capital has been ongoing since at least the publication of Arrow and Lind’s seminal 1970 article. Arrow and Lind conclude that, under certain conditions, the social cost of public-sector-provided capital is lower because project risk can be spread more broadly across taxpayers than across relatively concentrated private investors. The issue’s relevance is growing in the United States due to rising use of public-private partnerships, or PPPs, in major economic sectors. PPPs allow for enhanced private-sector participation in a variety of infrastructure-related activities, including project design, construction, operation, maintenance, and financing. Despite rising use of financial economics to examine this question, analysis of the legal and institutional arrangements surrounding taxpayer- versus private-investor risk bearing has been limited. The vast differences in such arrangements, including the limited liability and transferability of ownership that typically accompany private risk bearing, among others, invite such an analysis. We here apply institutional analysis to analyze the relative social cost of capital. We find that institutional arrangements that have evolved over decades to reduce the cost of private-sector risk bearing are unavailable to taxpayers in their capacity as public investment’s ultimate risk bearers. Our analysis of the arrangements surrounding public- versus private-sector risk bearing casts doubt on Arrow and Lind’s conclusions.
The management of nongovernmental organizations (NGOs) has emerged as an important problem in recent years. Much of the discussion about NGO management has centered around the need for accountability. We demonstrate that the tools typically used by donors to improve NGO accountability, namely reporting and shorter funding cycles, can trigger unintended consequences. Our analysis shows that demonstrating attribution within the constraints of a short funding cycle can become so important to the survival of the NGO that it interferes with the long-term policy goals of the organization. The resulting short-term NGO behavior is often misconstrued as incompetence, but it is actually motivated by the structural constraints of the relationship with donors. Whenever an NGO has to choose between actions that generate attributable outcomes versus actions that will not lead to attribution, the NGO is likely to choose the former, even when the latter choice would have a more durable policy impact. We illustrate this strategic dynamic with a focus on two types of NGO activity: water improvement and international crisis mediation.
The laggards of the Eurozone pose a novel economic and legal issue. Whereas the Eurozone sorely needs growth in the PIRGS, neither conventional Keynesian stimulus nor devaluations are likely to be productive. This essay proposes that growth be rekindled by forced over-recapitalization of the laggards’ private banks. This will generate local growth while circumventing inefficient national governments and without starting an inflation spiral or additional bureaucracy. The danger is that the proposal leaves open the possibility that member states can take advantage of their banks which implies the Eurozone needs to revisit its approach to federalism, to help which the paper juxtaposes the development of US bank federalism.
Corporate governance codes are an increasingly prominent feature of the regulatory landscape in many countries, yet remarkably little is known about the determinants of corporate governance reform. Potential determinants include: (1) the diffusion of an international benchmark model of good governance; (2) a country’s legal system; (3) the desire to attract foreign investors; and (4) the influence of interest groups. I construct a proxy for the investor-friendliness of 52 corporate governance codes of different jurisdictions and collect data on the code issuers. I find strong evidence that the drafters of codes emulate international benchmark models and that jurisdictions belonging to different legal traditions use different regulatory strategies, some evidence that portfolio equity inflows are associated with the investor-friendliness of codes, and no evidence that interest groups succeed in affecting rules. The article suggests a method for the modeling of legal evolution, convergence, and the political economy of corporate governance codes.
As documented by Macauley (1963) and others, informal contracts are pervasive in modern economies. Yet, systematic empirical evidence on their importance and role is still limited. In this paper, we provide a methodological framework to test for the presence of informal contracts and their interaction with formal ones. First, we present a model that organizes the main testable predictions from economic theories of informal contracting. Next, we examine how, and to what extent, existing empirical works support the model’s predictions. Finally, we discuss strategies for testing theoretical predictions for which conclusive evidence is still missing, as well as unexplored research opportunities offered by available studies and data.
The literature that investigates the determinants of crime has often used natural experiments that often exogenously change the supply of crime such as election cycles, police strikes and law changes to learn how policy may impact crime from a supply side perspective. In this paper, we are aiming to contribute to this literature using the government shutdown that occurred in the US in October of 2013. During this period, a large share of government workers in Washington DC was furloughed and exempt from having to show at work. Using crime data sets provided by the Washington DC and Baltimore police departments, we investigate whether this temporary shift inward of demand decreased crime in DC relative to its crime rates in 2012 and the city of Baltimore (located 40 miles away). The results in this research are not only informative of the shape of the supply curve of crime (elastic versus inelastic), but also detail an intended consequence of the government shutdown. Preliminary results show that there is not a statistically significant decrease in crime when our observational unit bundles all crimes together regardless of the type of crime, city area and time of the event. Once we break the data by district, type of crime and time of the event we show that crime decreased in ways that one would expect. Our findings show that crime went down in the evening (but not at night and mornings) and also for theft (but not homicide, arson or burglary). Our results are informative that crime offenders react to demand conditions through decreasing crime offenses when the number of potential victims is low and also substitution into other areas, time of the day and type of crime. These results are telling that the war on crime is as effective if fought through the demand side as fought in the supply side. Despite this conclusion, we cannot provide evidence from our natural experiment of whether supply and demand side policies are substitutes or complements.
This paper empirically documents the causes and consequences of mergers and acquisitions in the US video game industry. For this purpose, we use a widely used data set from NPD on video game monthly sales from October 2000 to October 2007 that we complement with hand-collected information on the identity of video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate the performance of video game developers and publishers before and after an acquisition takes place. During this period of time, we observe that 57 out of roughly 600 upstream game developers were acquired by downstream publishers. Because we are able to observe the developer before and after the acquisition, we are able to build up a simplified version of the integration model in Whinston (2003) and derive testable implications that apply to our empirical setting. First, we show that a developer is more likely to get acquired after releasing a hit game. Second, we find that publishers and developers are likely to underperform after an acquisition takes place. Third, we find that the acquiring party may not need to have contracted in the past with the acquired party. We also explore the impact of developer and publisher location on acquisition decisions as well as game portfolio effects. While we argue that these three findings are difficult to reconcile with Transaction Cost Economics theories, theories of integration that focus on the relevance of non-contractible investments, learning and employment relations do not seem to do much better.
Nation-building is a broad term used to describe international efforts to conduct exogenous institutional change in weak and failed states primarily through the use of military force. We argue that, except in a few isolated cases, this nation-building strategy has failed to achieve the intended economic growth and political stability. While the field of institutional economics has a growing awareness of the importance of informal institutional factors like culture, they have yet to develop a strategy for intervening in national economies in a bottom-up fashion. As a result, the ‘know what’ exceeds the ‘know how’ in creating economic growth (P. J. Boettke, 1996), and the practice of nation-building tends to be top-down only. In Helmand Province, Afghanistan in February 2010, one eight-man Special Operations Detachment pacified its area of operations within a three week period during the Afghan surge operations, coined Operation Moshtarak, by applying Special Forces techniques. This paper explores how Special Forces techniques can overcome the ‘know-how’ deficit and be used to trigger the development of economic institutions during nation-building. This ‘know-how’, rooted within a Special Forces mindset defined by the imperatives to ‘Understand the Operational Environment’ and ‘Establish Rapport’ can be specifically applied to future nation-building activities by civilian organizations. The implementation of a successful bottom-up strategy requires exogenous forces to: (1) understand and adopt the indigenous mindset; (2) work by, with, and through, but not against, the mindset; (3) model the behavior desired in the indigenous population; (4) achieve legitimacy by indirectly applying capabilities and resources toward indigenous objectives; and (5) employ influence within trust-based relationships to nudge indigenous behavior towards desired institutional change.
Nation-building is a broad term used to describe international efforts to conduct exogenous institutional change in weak and failed states primarily through the use of military force. We argue that, except in a few isolated cases, this nation-building strategy has failed to achieve the intended economic growth and political stability. While the field of institutional economics has a growing awareness of the importance of informal institutional factors like culture, they have yet to develop a strategy for intervening in national economies in a bottom-up fashion. As a result, the ‘know what’ exceeds the ‘know how’ in creating economic growth (P. J. Boettke, 1996), and the practice of nation-building tends to be top-down only. In Helmand Province, Afghanistan in February 2010, one eight-man Special Operations Detachment pacified its area of operations within a three week period during the Afghan surge operations, coined Operation Moshtarak, by applying Special Forces techniques. This paper explores how Special Forces techniques can overcome the ‘know-how’ deficit and be used to trigger the development of economic institutions during nation-building. This ‘know-how’, rooted within a Special Forces mindset defined by the imperatives to ‘Understand the Operational Environment’ and ‘Establish Rapport’ can be specifically applied to future nation-building activities by civilian organizations. The implementation of a successful bottom-up strategy requires exogenous forces to: (1) understand and adopt the indigenous mindset; (2) work by, with, and through, but not against, the mindset; (3) model the behavior desired in the indigenous population; (4) achieve legitimacy by indirectly applying capabilities and resources toward indigenous objectives; and (5) employ influence within trust-based relationships to nudge indigenous behavior towards desired institutional change.
Does land tenure fuel armed conflict? If so, which types of property arrangements lead to greater violence? I revisit this longstanding question by exploiting exogenous variation in the agricultural incomes of Peruvian coffee producers to compare how they affect violent outcomes in districts under different property arrangements. Using detailed data on district level land tenure and violent attacks by the Peruvian guerrilla and government army between 1990 and 2000, I find that negative price shocks leads to an overall increase in violence, particularly from guerrillas. Yet, such spike in violence is unchanged in districts with a prevalence of individual ownership but smaller for districts under communal arrangements. These results suggest that forms of shared ownership may better attenuate income shocks from international markets. A close examination of the mechanisms at work shows that negative price shocks led to a higher rate of unemployment in ownership areas than in communal land tenure districts. Consistent with this interpretation, coffee price shocks only have an effect on violence at times when coffee is not being harvested, hence unemployment is larger. The paper provides the first micro-estimations of the role of different property arrangements on violence intensity in Peru.
This paper evaluates the relative importance of a ``culture of cooperation,'' which is the strength of norms of trust and respect for others, and ``inclusive political institutions,'' which enable voters to check the power delegated to their representatives. I divide Europe into 120km x 120km grids and exploit exogenous variation in both institutions driven by Medieval history. In particular, I document strong first stage relationships between present-day culture and the forces that aggravated consumption risk---i.e., climate volatility---between 1000 and 1600 and between the inclusiveness of present-day regional political institutions and the factors that shaped the returns from elite-citizenry investments in the Middle Ages, i.e., terrain ruggedness and direct access to the coast. Using this instrumental variables approach, I show that only culture has a first order effect on development, even after controlling for country fixed effects and present-day human capital, financial development, sectoral specialization, climate volatility, and distance to the coast. Crucially, the excluded instruments have no direct impact on development and the economic effect of culture holds within pairs of adjacent grids with different Medieval climate volatility. An explanation for these results is that culture but not democracy is necessary to produce public-spirited politicians and push voters to punish political malfeasance. Micro-evidence supports this idea.
As an attempt to contribute to the long-standing debate over sharecropping issue in land tenure, this paper focuses on explaining why would such inefficient contractual arrangement persist in agrarian society in Indonesia. The objective is to explore the determinants of contractual arrangements employed by farmers in rice production and their effect on economic efficiency, in order to understand the rational framework of the farmers in decision making. Two types of contractual arrangements have been examined in this paper. They are the sharecropping contract as compared to the fixed-rent one in the supply of land transaction, and the selling standing crops for cash as compared to the self-harvesting in the supply of harvesting transaction. The findings were drawn from a cross-sectional data, based on a survey to 203 paddy rice farmers in Cianjur District, West Java. A qualitative study in terms of in-depth interviews and focus-group discussion follows. This paper focuses on the role of the transaction costs and risk dispersion as the determinants of the contractual arrangements employed by the farmers. A situational analysis shows that those determinants were shaped by the situation of high environmental risk and uncertainty, accompanied by the weak access of the farmers to finance, insurance and product markets, and the labor shortage in the area. A two-stage estimator model for the selection bias correction was used to test the effect of the all the determinants to the productive efficiency of the farm, in which the selling-price of the output equals the cost per unit of output. This paper finds that while sharecropping was proven to minimize losses, it is not the case with selling standing crops arrangement. Therefore, sharecropping, was a rational choice of the farmers under the specific situation described above. This paper buys on Kahneman and Tversky's (1979) prospect theory in explaining the rationality of farmers in favor of sharecropping.
Greater awareness about the consequences of increasing greenhouse gases (GHG) has triggered some policies in order to reduce emissions, including the creation of carbon markets. There are different types of mechanisms, such as the European Emission Trade Scheme (EU ETS), which follows the cap-and-trade principle, and carbon credits based on projects deployed with a focus on emissions reductions (such as the Clean Development Mechanism, CDM, a Kyoto Protocol instrument). Based on the New Institutional Economics, the main objective of this paper is to discuss whether the performance measure Emissions Reduction Success (RS) in the EU ETS and in CDM projects are influenced by institutional characteristics of the hosting countries (such as transaction costs, property rights, and corruption) and by microeconomic features of projects (such as sector, scale, and GHG emission reduction volume). For this purpose, Emissions Reduction Success (RS) is defined as the ratio between estimated and actual emissions reduction. By using econometric models, we conclude that institutional and microeconomic variables influence Emission Reduction Success in both EU ETS and CDM projects. The most important variable affecting project performance is the project sector.
Many social scientists rely on the rule of law in their accounts of political or economic development. Many however simply equate law with a stable government capable of enforcing the rules generated by a political authority. As two decades of largely failed efforts to build the rule of law in poor and transition countries and continuing struggles to build international legal order demonstrate, we still do not understand how legal order is produced, especially in places where it does not already exist. We here canvas literature in the social sciences to identify the themes and gaps in the existing accounts. We conclude that this literature has failed to produce a microfoundational account of the phenomenon of legal order. We then discuss our recent effort to develop the missing microfoundations of legal order to provide a better framework for future work on the rule of law.
Why are contracts incomplete? Transaction costs and bounded rationality cannot be a total explanation since states of the world are often describable, foreseeable, and yet are not mentioned in a contract. Asymmetric information theories also have limitations. We offer an explanation based on “contracts as reference points”. Including a contingency of the form, “The buyer will require a good in event E”, has a benefit and a cost. The benefit is that if E occurs there is less to argue about; the cost is that the additional reference point provided by the outcome in E can hinder (re)negotiation in states outside E. We show that if parties agree about a reasonable division of surplus, an incomplete contract can be strictly superior to a contingent contract.
Combining archival research with elite interviews in Jordan, this study employs qualitative methods to construct an empirical account of the institutional constraints shaping Jordanian water sector dynamics since King Abdullah II’s reign began in 1999. Our findings indicate that the drivers of informality in the sector stem from Jordan’s state-building process; de facto water policy emerges as a neo-patrimonial survival tool on the macro-level and, on the micro- and meso- levels, as a networked state-society relationship mediating access to state resources. Given water’s natural scarcity in Jordan, the persistence of informal institutions like water theft and nepotistic behavior is therefore puzzling in a sector widely acknowledged to be critical for economic development. This apparent incongruity is most completely understood when Jordan’s socio-political power structure is situated within a path dependence framework. This case provides an inroad to refining theories of path dependency and institutional evolution in authoritarian contexts, and contributes more broadly to empirical new institutional economics (NIE) research.
Although most firms own alienable assets, many firms do not. This paper approaches the problem by embedding the Grossman-Hart-Moore (GHM) property rights model within a larger theoretical framework that can describe a richer spectrum of governance structures—including not only fully integrated firms and fully disintegrated market transactions, but also asset-less firms and exclusive dealing between firms. The framework operates by combining the GHM model with a model of bargaining control rights, yield- ing, in some cases, an allocation of ownership rights different from what the GHM model implies. When we interpret the model at the level of individuals, it can be efficient to prohibit employees from side-contracting with each other, and preventing other firms from side-contracting with one firm’s employee could also improve efficiency. These results are consistent with what we observe in employment law. An important benefit of this approach is a clear interpretation of the employment relationship, i.e., an affiliation between the firm and its employees when there are multiple parties in the model. When we interpret the players at the business unit level, the model shows that dealing with a firm through an exclusive dealing contract could be more efficient than both dealing with a fully independent firm and producing through a fully integrated business unit, such as a division or subsidiary.
Piece-rate compensation typically elicits higher volumes of output from workers. It is commonly believed that such compensation yields lower quality of output, but empirical studies of quality effects are rare. Using novel data concerning technicians in a large energy-related home services firm, we study the effect of piece-rate compensation on both quantity and quality of output. Piece-rate technicians complete jobs more quickly than their hourly-wage counterparts. Piece-rate technicians and hourly-wage technicians generate similar defect rates, a key measure of quality. However, piece-rate technicians perform less well than hourly-wage technicians on subjective customer-satisfaction measures. These findings highlight the multi-faceted aspects of quality service provision, and generate implications for the type of activities in which the quality/quantity tradeoff associated with piece-rate compensation will be low or high.
The United States federal government preempted state telegraph regulations it deemed as anti-competitive by enacting the 1866 Post Roads Act. The 1866 Post Roads Act granted a de facto national charter and franchise to build and operate a telegraph system anywhere in the United States to any telegraph company organized within any state. The act also outlawed certain types of contracts that had prohibited other companies from acquiring telegraph right of way access. The paper shows that rival firms took advantage of the 1866 Post Roads Act to enter the telegraph market and compete with Western Union. This historical evidence supports that the 1866 Post Roads Act likely increased competition.
This paper-—based on our 2014 The Long Process of Development: Building Markets and States In Pre-Industiral England, Spain, and Their Colonies--uses the 2013 In the Shadow of Violence by Douglass North and his co-authors to explain the causes of the Glorious Revolution ignored in North and Weingast’s iconic 1989 “Constitutions and Commitment.” In the Shadow of Violence argues that until the end of a multi-century process, an elite dominant coalition, including the military, produce stability by denying non-elite forces access to the political process and dividing the monopoly “rents” among themselves. The book deals with the modern developing world and does not mention Europe. We argue that English development is to be understood by combining the insight about dominant coalitions and the military in In the Shadow of Violence with North’s insights about informal institutions not discussed in “Constitutions and Commitment.” The dominant coalition of a rural society is composed of regional warlords with their own military. The dominant coalition of a modern society is composed of the urban elites-—business, financial, military, government bureaucrats, etc. etc. But North is right: the process is very long. The 1600s were transitional. The [war]lords had been disarmed, but the new coalition was only being formed-—and only first part, the alliance of the military and the merchants with their armed merchant fleet. North and Weingast did not discuss religion, but as R. H. Tawney argued, economic change produced ideologies in support (Calvin) and those against (Luther or English sects). The religious conflict exploded in civil war in 1640 when no military force existed to control it. But by 1660 the navy-merchant alliance had the force to impose the Restoration and then the Glorious Revolution. The 1700s became, in the words of John Brewer, “a military-financial state” that was stable as a new urban elite was expanded and consolidated.
Existing literature on the legitimizing role of institutions tilts towards a “more is better” perspective, proffering the notion that the liabilities of smallness and newness can be mitigated through institutional policies that foster acceptance, trust and confidence. Although this may seem reasonable, even desirable, institutional munificence can trigger massive over-entry, potentially causing unintended consequences and unwanted social costs. Using a dataset of nearly six million transaction-level decisions involving all 612 companies and 56,240 permitted projects from a complete industry history, I find that unforeseen costs arise when small, early-stage firms substitute the legitimizing effects of institutional support for strategic coherence. The findings are surprising and significant. While institutional support for new markets does in fact generate a surge in firm formations, the ill-effects of munificence are evidenced by indiscriminate, contagion-style market entry by unfit firms that perform poorly, fail quickly, and leave a long trail of regulatory violations in their collective wake. The study offers opportunities for scholars, practitioners and policy-makers to reassess the core assumptions related to the benefits and costs of institutional support for new industries, firms, and entrepreneurs.
Which comes first: the demand for entrepreneurial innovations or the supply? Although existing theories posit an interactive, highly interdependent model of demand-pull and supply-push forces; functionally, scholarship has focused overwhelmingly on the supply of entrepreneurial innovations, not the demand. The result of this supply-side skew is that the influence of demand-side opportunity signaling has been relegated to a subordinate, virtually non-existent role. In one of the first expansive empirical analyses highlighting societal demand for entrepreneurship, I use historical artifacts and cliometric models to analyze data spanning 97 years -- from the launch of Popular Science Monthly magazine (1872) to the first moon landing (1969) – in order to assess the ways in which society signals demand-side preferences for a greater quantity and diversity of entrepreneurial activity. By employing panoramic data and an historical approach, my study provides evidence that opportunity spaces often exist prior to being occupied; societal preferences play a key role in determining the quantity and diversity of entrepreneurial activity; and, entrepreneurs who are responsive to demand-side opportunity signaling are likely to face significantly greater prospects of long-term survival. The findings offer transformative insights for scholars and practitioners by revealing the critical role of demand-side opportunity signaling and reestablishing mutuality between supply-push and demand-pull forces in generating and selecting new innovations.
The presence of juice processors within citrus growing activity is a characteristic in Brazilian orange juice sector since its beginning but, during 1990s, this presence became increasingly large. No dramatic changes in transaction costs were observed, but accusations of market power exertion of juice processors and antitrust actions marked the period. More importantly, backward vertical integration of juice processors was free and citrus growers faced barriers to forward vertical integration during the period. The research question is: how power affects vertical integration choice in orange juice sector after 1990? The main hypothesis posits that power has an important role in the economic organization of orange juice sector, but it is simultaneously found with economizing drivers. Using panel data analysis, a sample of the five largest juice-processing firms contemplated a 15-years period, from 1993 to 2007. Results indicate asset specificity and power as the determinants of economic organization of orange juice sector. The study contributes to the investigations of the special cases in which power is relevant, indicating that the simultaneous consideration of power and efficiency should be the starting point of organizational analysis.
This paper examines the hypothesis that institutional development, in the form of property rights, may have played a key role in facilitating agricultural capital accumulation, which in turn promoted the emergence of early civilizations. We rely on a falsification approach that examines Neolithic settlements in riverine environments along major ancient trade routes, and argue that neither geography nor trade---two main fundamental determinants of growth---were not sufficient to ensure the emergence of civilizations between 4500 and 1600 BCE. We go on to show that a distinguishing feature of these early civilizations was the development of institutional regimes that offered either actual or notional respect for property rights, and the importance of the development of writing in supporting such regimes.
We study the impact of an exogenous increase in credit on entrepreneurship, using a unique mortgage reform in Denmark. The reform increased individuals’ access to credit without increasing their level of wealth. This allows us to isolate the impact of relaxed credit constraints that are typically confounded with wealth effects in studies of financing constraints in entrepreneurship. Despite having a sizeable increase in access to credit, we find no differential impact on entry rates, entry sizes or the survival or new ventures for those that benefited the most from the reform. Nevertheless, and similar to prior work, we find a strong relationship between increases in housing wealth and entry into entrepreneurship. Our results point to the importance of considering wealth effects in studying entrepreneurship and also suggest that increases in house prices do not necessarily lead to entrepreneurship through the collateral channel.
What is the relationship between state capacity and the creation of well functioning national institutions grounded in the rule of law? This paper argues that increased state capacity can lower the collective action costs of creating national institutions by facilitating the formation of a common identity. This hypothesis is tested by exploiting the fact that the French Monarchy was more successful in substituting its fiscal and legal institutions for those of the medieval seigneurial regime within an area of the country known as the Cinq Grosses Fermes (CGF). Highly disaggre- gated data on regional self-identification from the 1789 Cahiers de Doléances confirm that regions just inside the CGF were more likely than regions just outside the CGF to identify themselves as ‘French’ or ‘subjects of the king’ as opposed to identifying with local institutions. We also show that regions inside the CGF that affiliated with national identity were also more likely to provide local public goods, support the national political party, and had lower fertility rates in the nineteenth century.
This paper develops an empirical macroeconomic framework to analyze the relationship between major political disruptions and business cycles of a country. We combine a new dataset of mass unrests across the world from 1960 to 2006, with macro data (output, investment, trade, inflation and exchange rate). We then build a panel vector-autoregression model with two novel ingredients: (1) mass unrests and (2) an estimated probability of such unrests. We find that both terms have statistically and economically significant impacts on business cycles: (1) Periods of mass unrests have an average impact of a moderate rare disaster; (2) More importantly, the estimated probability of mass unrests amplifies and propagates economic and political shocks. The second result suggests that our measure of political risk captures an important source of time-varying uncertainty and volatility in many countries.
Incumbent vertical market power in deregulating markets can be anticompetitive, as seen in the current process of retail electricity restructuring. This paper uses the AT&T antitrust case’s Bell Doctrine precedent of “quarantine the monopoly” as a case study in incumbent vertical market power in a regulated industry. It then extends the Bell Doctrine by presenting an experimentation-based theory of competition, and applies this extended framework to analyzing the changing retail electricity industry. The general failure to quarantine the monopoly wires segment and its regulated monopolist from the potentially competitive downstream retail market contributes to the slow pace and lackluster performance of retail electricity markets for residential customers.
This first pilot case study of the Models of Development and Experiential Learning (MODEL) project evaluates the factors that contributed to the success of the Akassa Development Foundation (ADF), a bottom-up, community-driven development project involved in developing local capacity to manage development activities in the Niger Delta. The study is based on household survey data as well as focus group and in-depth interviews that were collected in August and September 2013 in the Akassa community located in Bayelsa State in the Niger Delta region of Nigeria. The Institutional Analysis and Development (IAD) framework was used to evaluate the ADF. Results from the descriptive statistics reveal that a majority of the respondents (the heads of households surveyed in Akassa) were satisfied with the design and implementation of the ADF. A probit model was employed to empirically test the evaluative criteria of the Akassa Development Foundation. The evaluative criteria, based on the IAD framework, are used by ADF participants or external observers to determine what aspects of the community-driven development project have a positive or negative impact on the likelihood of successful outcomes. The empirical results from the probit model indicate that the involvement of the respondent or respondent’s household in the project design and implementation; involvement of the respondent or members of the respondent’s family in setting goals of the project; and community member involvement in discussing and approving the rules of the project positively and significantly affect satisfaction with the design and implementation of ADF. As our preliminary results show, active participation of the Akassa community in the Akassa Development Foundation positively contributes to beneficiary satisfaction with the intervention. Thus, policies that promote community involvement in similar development interventions should be encouraged.
Chinese government censorship of social media constitutes the largest selective suppression of human communication in recorded history. In three ways, we show, paradoxically, that this large system also leaves large footprints that reveal a great deal about itself and the intentions of the government. First is an observational study where we download all social media posts before the Chinese government can read and censor those they deem objectionable, and then detect from a network of computers all over the world which are censored. Second, we conduct a large scale randomized experimental study by creating accounts on numerous social media sites spread throughout the country, submitting different randomly assigned types of social media texts, and then detecting which types are censored. And finally, we supplement the current approach of conducting tentative confidential interviews with insiders via a participatory study, by setting up our own social media site in China, contracting with Chinese firms to install the same censoring technologies as existing sites, and reverse engineering how it all works. Our results demonstrate, contrary to prior understandings, that criticism of the state, its leaders, and their policies are routinely published whereas posts with collective action potential are much more likely to be censored (regardless of whether they are for or against the state). We are also able to clarify the internal mechanisms of the Chinese censorship apparatus, and show how changes in censorship behavior reveal government intent by presaging their action on the ground.
We show how Ostrom’s (1990) institutional design principles and Libecap’s (1989) theory of adaptive governance explain and predict when inter- and intra-firm adjustment toward efficient outcomes is likely. We argue that the principles developed to explain common-pool resource problems are isomorphic to governance club-goods problems, which are central to inter- and intra-firm coordination. We illustrate our integrative Ostrom/Libecap framework with several examples and discuss why adaptation is typically more effective in governance than in institutional design. We consider how the institutional governance literature enriches organizational governance research, and vice versa, especially through the emphasis of organizational governance research on appropriability.
I combine a model of international cooperation with a model of domestic politics with primaries and national elections between candidates of two different parties. International cooperation is modeled as a repeated prisoner’s dilemma game between two countries. I compare four different types of equilibria. In the country specific grim trigger equilibrium, domestic politics does not affect international cooperation and the standard results for the repeated prisoner’s dilemma game apply. The second equilibrium is based on Mcgillivray’s and Smith’s(2008) idea of leader specific punishment. If a prime minister cares sufficiently about staying in office, the threat of replacing him in a primary if he does not cooperate internationally can change a politician’s incentives and make a larger maximum equilibrium level of cooperation possible. I introduce two new types of equilibrium to the literature that are specific to my model. In the case of party specific punishment without international dominance, as punishment for a deviating on the international level,prime ministers are not only replaced, but in addition the party to which the prime minister belongs loses power. This increases the severity of punishment and consequently increases the maximum possible level of international cooperation. However, voters are only able to commit to such a strategy if maximum equilibrium level of international cooperation is large enough to justify replacing a popular prime minister. In the case of party specific punishment with international dominance, the voters always reelect a prime minister who cooperates internationally, even if they prefer the candidate of the other party ideologically. In this setting, a deviating politician loses office forever instead of keeping it forever. Consequently, the maximum achievable level of international cooperation is very large, but elections no longer lead to the victory of the candidate preferred by the majority of voters.
This paper studies the persistence and consequences of political centralization and fragmentation in China and Europe. We argue that the severe and unidirectional threat of external invasion fostered political centralization in China while Europe faced a wider variety of external threats and remained politically fragmented. Our model allows us to explore the economic consequences of political centralization and fragmentation. Political centralization in China led to lower taxation and hence faster population growth during peacetime than in Europe. But it also meant that China was relatively fragile in the event of an external invasion. We argue that the greater volatility in population growth during the Malthusian era in China can help explain the divergence in economic development that had opened up between China and Europe at the onset of the Industrial Revolution.
History repeated itself in 2008. As so many times in the past from 1637 onward a combination of gullibility, greed, and strong ideological commitment that limited insight into developments in the financial sector a major crisis swept over the advanced economies of the world. Why can’t we avoid making the same mistakes over and over again? The Great Meltdown happened at a time when most macroeconomists (including Nobel Prize winner Bob Lucas as well as none other than the current Fed Chairman Ben Bernanke) were writing about the “Great Moderation,” i.e., that business cycles have vanished for all practical purposes. They were obviously dead wrong along with thousands of their colleagues. The Queen of England famously asked why those responsible for financial stability failed to see such a big bubble coming. This the talk focuses on four aspects of the crisis that are often skirted in formal presentations: 1) the role of ideology in why Greenspan and Bernanke overlooked the coming of the crisis; 2) who were the Cassandras whose warnings were disregarded; 3) the counterfactual policy that would have done a better job of rescuing not only Wall Street but also Main Street and would have avoided what according to Paul Krugman has become a “sour economy” six years into the crisis; and 4) what are the prospects for the U.S. economy for the foreseeable future.
The relational contracts literature suggests that a principal can improve contract self-enforceability by specifying initial conditions/requirements that increase the agent’s ex-post rents. Initial requirements specified in hotel franchise agreements — size and quality-tier of hotel — offer a unique empirical setting to test this. Using 2000-2008 data on 5,547 new franchised hotels and their revenues, we find that hotels far away from their franchisor’s headquarters are larger, more likely to be high-quality, and generate higher revenues ex-post. This supports the idea that the agent’s ex-post rents can serve as a substitute to the principal’s monitoring intensity in the mitigation of agency problems.
This paper seeks to quantify the impact of non-market institutional transaction costs on cross-country economic performance. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for possible sources of endogeneity and further demonstrated in a cross-country growth model calibration. Moreover, the results provide evidence that transaction cost might indeed be central to the study of structural growth mechanisms, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performances over time.
I argue that the justice cascade, the rapid trend toward holding leaders accountable for human rights violations, inadvertently exacerbates conflict. By undermining the possibility of a safe exile for culpable leaders, international justice incentivizes such leaders to cling to power and gamble for resurrection when they would otherwise flee abroad. As evidence, I examine the arrest of former Chilean leader Augusto Pinochet in the United Kingdom in 1998—the first time a leader was arrested in a foreign state for international crimes—as a plausibly exogenous shock to other leaders’ beliefs about the likelihood of post-tenure international punishment. I show that before 1998 leader culpability does not affect patterns of exile or civil conflict duration. After 1998, however, I find that (1) culpable leaders are less likely to go into exile and (2) civil conflicts last longer when culpable leaders are in power.
Why is surrogacy enforceable in some of the US jurisdictions and not in others? In what way does the enforcement of surrogate motherhood contracts effect the number of exchanges between intended parents and surrogate mothers? Throughout the last two decades of the twentieth century, public approval of surrogate motherhood, as expressed in opinion surveys, increased. Using data from surveys carried out through the period 1983-1992 I examine the relationship between approval of surrogate motherhood and time to legal institutional change. By means of duration analysis I show that, through political processes, changing beliefs effect institutional change. Other factors, including accidents, imitation, and historical conditions, are also shown to have an effect on the probability of legal institutional change. By means of a comparative institutional analysis I show that between the years 2003 and 2010 states with judge-made-surrogacy law registered systematically higher number of surrogate motherhood contracts than other states.
Researchers have long been interested in understanding how top managers may affect firm performance and value. They paid particular attention to the differences in performance of firms with owner-managers and those with hired managers, with the principal-agent problem being a core explanation for the observed variations. However, this stream of research has largely overlooked young entrepreneurial and family firms, where the principal-agent problem was assumed to be nonexistent or minimal. In this paper, we question this assumption. We examine whether the principal-agent conflict affects the performance of young entrepreneurial ventures with hired managers and determine whether their performance is more sensitive to the monitoring difficulty or effort incentives of hired managers. We use two policy changes that would exogenously increase monitoring difficulty and managers’ effort incentives—a shock to the accounting system and a shock to the local labor market. We find that, similar to established corporations, young entrepreneurial ventures suffer from the principal-agent problem. However, unlike corporations, entrepreneurial ventures seem to be much more sensitive to the managers’ incentive intensity than monitoring difficulty. These results suggest that the sources of the principal-agent conflict may be different in entrepreneurial start-ups and corporations and open a broad avenue for further research of the underlying mechanisms. The findings also suggest that entrepreneurs may be better off motivating their managers through incentives, rather than further investing in monitoring systems. Additionally, we demonstrate how policy changes may exogenously discipline hired managers through the labor markets.
The breakdown of the Second Spanish Republic after the military coup of July 1936 plunged Spain in a three-year civil war that ended in Franco's dictatorship. The war marked the end of the attempt to establish democracy in Spain and retarded the economic and political development of the country by at least twenty years. This paper establishes the relevance of the Army as a pertinent political player in understanding the dynamics of the Second Republic and shows that, contrary to traditional views, the military was a non-monolithic organization which was divided in different factions with conflicting interests. The empirical section explores the impact that republican military policies and factional military interests had on officers' side (rebel or loyal) during the Spanish Civil War. The econometric analysis uses a new data set that identifies officers' side and uses information from military yearbooks to follow officers' individual history between 1910 and 1936. The results confirm that the Army was a non-monolithic organization where factions behave differently and responded to the impact that republican military reforms had on them. Officers in favored corps and those that enjoyed greater promotions between 1931 and 1936 were more likely to support the republican regime. Finally, the paper explores the effect of hierarchy on officers' choice. Results show that subordinates tended to follow the side chosen by their senior officer.
Among typical entrepreneurs, is the serial entrepreneur more likely to succeed? If so, why? We answer these two questions using a comprehensive and unique data set on all establishments started at any time between 1990 and 2011 to sell taxable goods and services in the state of Texas. An entrepreneur is defined as the owner of a new business. A serial entrepreneur is one who opens repeat new businesses. The success of the business is measured by the duration over which the business is in operation. The data show that serial entrepreneurship is relatively uncommon in retail trade. Of the almost 2.3 million retail businesses of small owners of new businesses in our data, only 25 percent are started by owners who have started at least one business before, and only 8 percent are started by an owner who is still operating at least one other business started earlier. However, once one becomes an entrepreneur for a second time, the probability of becoming one a third time, or fourth time, and so on, keeps rising. Moreover, we find that an owner's prior experience at starting a business increases the longevity of the next business opened, and that controlling for person fixed effects, prior experience still matters. Finally, experience at starting retail businesses in other sectors (e.g. a clothing store versus a repair shop) is beneficial as well, though not as much as same sector experience, and not in the restaurant sector. We conclude that prior experience imparts general skills that are useful in running the new business.
This contribution focuses on three dimensions of the design of regulatory policy. First of all, the substance of laws and regulations can be articulated around historical, technological, economic or functional concepts. Secondly, the enactment and enforcement of laws and regulations can be centralized or decentralized. Thirdly, enforcement can be entrusted to a regulatory agency or left to the executive branch. This contribution examines communications policy in the two largest regulatory spaces, the USA and the EU, identifying the design choices that were made in the last major policy revisions, in 1996 and 2002 respectively. The discussion of infrastructure investment and network neutrality is used as a case study to highlight similarities and differences in regulatory design, and their consequences for policy development. The USA traditionally chose for a technologically-based legislative framework, with strong, centralized enforcement in the hands of a regulatory agency (the FCC). The last major reform, in 1996, did not significantly stray from these design choices. The infrastructure investment and network neutrality debates highlight how the FCC has sought to free itself from technological shackles, with limited success. At the same time, the FCC has been able – willingly or not – to avoid Congressional intervention to legislate on network neutrality. In the EU, the 2002 regulatory framework was expressly meant to be based on functional and economic concepts, as opposed to technological ones. At the same time, it relied on decentralized enforcement by regulatory agencies, albeit that the regulatory agency model is not firmly established in Continental polities. The infrastructure investment and net neutrality debates highlight the downsides of the EU regulatory design.
Are business associations - private, formal, nonprofit organizations designed to promote the common interests of their members - positive or negative for the economy and overall welfare? Scholars from new institutional economics, on the one side, and industrial organization, law & economics, and public choice, on the other side, have given different answers to this question, which is instrumental for policy making. We construct a model that endogenizes association membership of firms and the main functions of associations, which can have positive or negative spillovers for the economy. We derive predictions regarding associations' functions and their net welfare effects, depending on the level of property rights securitization, which are in line with empirical observations.
The voting literature has largely analyzed voter turnout and voter behavior separately, with a focus on individual election outcomes. This is in spite of the fact that multiple elections are on one ballot, and turnout is determined by participation in all elections. I present a model of voter turnout and behavior in multiple elections. The assumptions are consistent with individual election preferences and decision is derived from utility maximization. I also provide necessary moment conditions for identification. The framework is applied to analyze turnout and voting choices in the 2008 California elections for the US presidential election and Proposition 8 ballot initiative. The exit polls and initial election results made national headlines by linking the historic turnout of African-Americans for Presidential candidate Obama in helping pass Proposition 8. I structurally estimate the demographic preferences for each of the election choices. I find that the African-American turnout and voting share for Proposition 8 was lower than predicted by the exit polls. As a counterfactual, I use the estimated model to look at the turnout and outcome of Proposition 8, without the presidential race on the ballot. As predicted by the model and estimates, I find lower voter turnout that are on par with midterm elections. I also find a lower share of Yes votes on Proposition 8 – enough that the referendum would not have passed.
This paper aims at building a theory of governing mixed public/private IT infrastructure, with particular attention paid to the roles played by such intermediaries as industry associations. The original research question was raised out of our long term observation of the landscape of China’s massive pharmaceutical IT infrastructure building in both the public and private sectors. These projects have the nature of creating collective goods, and the governance structures show some clear distinctions from the traditional textbook models in economics and from established practices in a mature economy as well. Insights gained from the case analysis of the healthcare sector can shed light on many other industries which are in similar situations.
We explore the evolution of a firm's organization and performance. The owner and her employee play an infinitely repeated trust game in which the owner benefits from delegation only if the employee honors her trust by choosing her preferred project. The owner, however, cannot observe whether the project is available. We characterize the optimal relational contract and highlight two implications. First, profits decline over time as the firm's organization evolves from flexibility to rigidity. Second, which type of rigid organization the firm converges to—and thus its long-run profitability—is determined by random events in its early history.
This paper develops a general theory of the successor's dilemma which is common in autocratic successions: A rational dictator chooses a successor who needs to accumulate sufficient power base to carry on his legacy, but also tends to treat a powerful successor as a threat and then removes him by using social mobilization or elite contest. A weak successor won't be able to sustain the autocratic regime; and, if a dictator does not designate a successor, his regime may run into chaos after his death. Setting dictators and their designated successors as rational agents who care about power and legacy of greatness, this paper formulates various types of succession process with a structural model. Our theory has a substantial explanatory power over the autocratic successions across the history.
The degree of judicial independence has broad implications on economic development. For the executive’s non-expropriation commitment to be credible, it is necessary that the judiciary should be free to impartially mediate disputes between the State and its citizens. The prolific literature on de facto judicial independence misses a key-variable to explain political bias: the government’s discretion in appointing Supreme Court Justices. In this paper we explore a distinct feature of the Brazilian judiciary to assess political bias due to government appointment discretion. As there are two courts: the Supremo Tribunal Federal (STF) and the Superior Tribunal de Justiça (STJ), which deal with similar matters and have different restrictions on the appointment of its members, it is possible to compare the degree of political influence to which they are subject. Therefore, we test (1) if there are differences on the degree of political influence depending on the presidential discretion to nominate a justice, and (2) if the justices make strategic use of their positions, that is, actively benefit the party of the president that has appointed them. We find evidence of the first, but not of the second effect.
This paper examines how the knowledge-based view (KBV) can be applied to firm boundary decisions and the performance implications of those decisions. At the center of the paper is a theoretical and empirical examination of how firms efficiently organize manufacturing in a regulated industry. We find that distinct organizational approaches are advantaged in the terms of performance, depending on technological complexity and product novelty. We make theoretical and empirical contributions to KBV research that examines organization and performance related to knowledge development and transfer. The medical device manufacturing industry serves as the empirical setting.
We examine how multinational firms (MNCs) organize internal ownership of their firm-specific advantages (FSAs). In contrast to the assumption that FSAs are a public good within MNCs, we find that MNCs allocate economic ownership of their FSAs to affiliates and/or the parent within the firm. The MNC entities that own the FSAs contract or license them to other MNC entities. We draw on property rights theory to understand the decisions that MNCs make with regard to the internal ownership of FSAs, and we identify four different ways in which MNCs choose to structure internal FSA ownership. We argue that these structures are important in creating internal incentives and facilitating coordination. We find that MNCs with independent and easily codifiable FSAs, such as trademarks, are more likely to use ownership structures that provide market-like incentives. In contrast, MNCs with knowledge-intensive, tacit FSAs are more likely to use ownership structures that facilitate knowledge sharing and coordination within the firm.
This paper examines how firms’ choice of vertical scope influences location decisions and, in particular, the extent to which vertical integration affects a firm’s propensity to locate in dense industrial clusters. Industrial agglomeration generates a rich array of “external economies” but suffers the handicaps of congestion. This paper argues that since greater vertical scope allows firms to tap into rich internal factors and economies, and thus to be less dependent on “external economies,” more vertically-integrated firms are less likely to locate in dense industrial clusters. I test this idea drawing on a rich dataset of manufacturing plants established in Mexico by U.S. firms after NAFTA came into force. The empirical evidence provides strong support for the main prediction. The results suggest that the selection of vertical scope may also influence other complementary strategic decisions beyond governance itself.
This paper investigates the intertemporal stability of the effect of deep determinants on economic and institutional development. Theoretically, the impact of historical or natural deep determinants should have been stable or slowly decreasing over time. Regressing institutional and economic outcomes on a broad range of deep determinants for each year since 1960, we show that both effect sizes and explained variance strongly increases over time. We conclude that the impact of deep determinants is recent and seems to contingent on the current global economic system.
We show that healthcare providers face a tradeoff between increasing the number of patients they treat and improving their quality of care, with those providers facing the strongest incentives to treat more patients delivering the lowest quality of care. To measure the magnitude of this quality-quantity tradeoff, we estimate a model of dialysis provision that explicitly incorporates a center’s endogenous choice of treatment quality and allows for unobserved differences in productivity across centers. We find that centers may treat 1 percent more patients by allowing their expected infection rate to increase by 0.8 percentage points (6 percent), holding inputs and productivity fixed. Our approach provides unbiased estimates of productivity, whereas traditional methods misattribute lower-quality care to greater productivity. We also find (i) extensive quality-adjusted productivity dispersion across providers, (ii) better outcomes among non-profit entities, and (iii) comparatively little effect from competition.
What are the factors driving the choice of the form of government? To address this question, the paper presents a theoretical model of the choice of form of government. This rational-choice model includes a constitutional as well as a political stage and is in that sense similar to the model of Robinson and Torvik (2012). The main difference between the models is the reversed order of the constitutional and political stages. While the order of Robinson and Torvik (2012) is more suitable for constitutional change, starting with the constitutional stage as a first step makes the model more suitable for situations of constitutional choice. So far, it has been argued that higher income inequality makes a parliamentarian system less likely. In this article, the likelihood of a parliamentarian system changes with the level of income inequality, but the direction of that change depends on institutional details such as the composition of the constitutional assembly. This result is thereafter analysed using the case study of five former Soviet republics after the breakdown of the Soviet Union.
A new strategy of criminal prosecution, called “community prosecution,” emerged in the past two decades. The strategy breaks with the traditional approach to prosecution in which a prosecutor works in an office adjacent to a criminal court, processes a large volume of cases, and measures success with conviction rates and sentence lengths. In community prosecution, a prosecutor works directly in a neighborhood, develops relationships with local groups, aligns enforcement priorities with residents’ public safety concerns, and seeks solutions to prevent crime ex ante. Recently, Miles (2014) studied two episodes in which Cook County, Illinois, applied the community prosecution strategy, and his differences-in-differences estimates reduced certain categories of crime, such as aggravated assault, but had no effect on other categories, such as larceny. This paper examines the mechanisms through which the crime declines occur by considering whether community prosecution also affected clearance rates. If clearance rates increased (while crime fell) in response to the introduction of community prosecution, it would indicate that a causal mechanism through which community prosecution reduces crime is through increased resident cooperation with law enforcement authorities. The paper is the first to study which institutional features of the multi-faceted community prosecution strategy cause the drops in crime.
This paper introduces ex post adaptation to unanticipated changes in trade circumstances into the well-known hold-up model developed in the literature on the property rights theory (PRT). We show that this simple extension may overturn the prominent result of PRT: it may be optimal to let the party who makes no investment own an asset. Specifically, we point out that assigning the asset to the party that makes an important investment may create a trade-off between ex ante investment and ex post adaptation. Our result is consistent with other theories of the firm, such as those involving transaction cost economics and multi-task incentive problems, and provides a formal explanation as to why some firms that are successful in existing technologies fail in adopting new technologies.
When contract enforcement is limited and markets are missing, trust becomes essential to economic exchange within large, complex, organizations. This paper explores the relationships between trust, organization and efficiency by focusing on coffee wet mills in Rwanda. We take advantage of three features of the context: [1] large number of large firms within an homogenous sector in a LDC; [2] simple technology allows for precise measurement of good management practices and unit costs differences and [3] a country in which, due to both long and recent history, significant variation in trust across narrowly defined communities is expected. We conduct a comprehensive firm survey of all wet mills, interviewing managers, owners, collectors, workers and farmers and match the data with a number of geo-spatial datasets. We obtain precise measures of trust by using canonical questions and play trust games among the respondents. We obtain information on specific managerial practices relevant to the industry and focus on the establishment of interlinked transactions between wet mills and farmers. Within narrowly defined locations we document significant dispersion in unit costs across wet mills. The dispersion is generated by variation in unit costs other than conversion ratios and coffee cherries input prices, i.e. from components of unit costs that are directly affected by management practices. We find that relationship-specific measures of trust positively correlate with both efficiency and managerial practices as predicted by theory. The importance of trust in an environment with missing markets overturns standard presumptions on the relationship between competition and efficiency. We show preliminary evidence that competition is associated with lower trust and higher unit costs. The evidence suggests that building trust is essential in successfully managing agricultural value chains and that the market is characterized by pecuniary externalities not mediated by prices.
This paper presents comparative statics of organizational forms of natural monopoly in public utilities with a focus on co-ownership and co-governance. Private monopoly lowers output and increases price to maximize profit. Public monopoly incurs higher costs due to the lack of know-how. A regulated monopoly results in regulation costs to overcome informational asymmetries. A public-private partnership arises as an efficient organization mode when it enables the internalization of private know-how and saves regulation costs due to correspondingly sufficient private and public ownership and control.
Using the paradox of the relative stability of urban form and illegality of property rights held by many individuals as an analytical entry point, this paper uses tools of new institutional economic theory to develop a conceptual framework linking informal property markets and the production of the built environment in developing countries. Conventional theory on urban location and structure is critically reviewed and shown to be inadequate or inappropriate for explaining urban form in these countries. In contrast, the conceptual framework developed in this paper is argued to be more theoretically sound, leading to a more appropriate policy disposition for more effective urban management.
In this paper we model the migration decisions of high-skilled women as a function of the benefits associated with moving from an origin with relatively low women’s rights to a destination with a relatively high level of women’s rights. However, the costs faced by women are decreasing in the level of women’s rights provided. The model predicts a non-linear relationship between the relative levels of women’s rights in destination versus origin countries (the women’s rights gap) and the gender gap in high-skilled migration flows (the female brain drain ratio). In particular, starting from large values of the women’s rights gap (where women’s rights are very low in the origin) decreases in the gap may be associated with increases in the female brain drain ratio. However, starting from lower levels of the gap the relationship is positive: a greater gain in women’s rights moving from origin to destination is, all else equal, associated with a greater likelihood of migration. Using a cross section of over 3,000 bilateral migration flows across OECD and non-OECD countries and the women’s rights indices from the CIRI Human Rights Dataset, we report evidence consistent with the theory. A statistically significant and nonlinear relationship exists between women’s rights gaps and female brain drain ratios. The evidence is particularly strong for the case of women’s political rights.
Contemporary Japanese firms provide an example of the “ports of entry” policy. However, this microanalysis of a steel company in the 1930s– 1960s shows that 1) the return on tenure and schooling surged from the late 1940s, 2) the return on on previous careers decreased from the late 1940s, indicating that extended schooling replaced mid-career experience, but 3) mid-career recruiting was active by the 1960s. These suggest that the Japanese model, which rewards tenure, was not an intended incentive design to induce firm-specific skill acquisition, but results of technological changes and the educational reform, of which firms became aware later.
The freedom of international travel could be restricted not only by visa requirements of destination countries, but also by the costs of compliance with regulations of exit in the countries of origin, first and foremost of obtaining a passport for foreign travel. Such costs exhibit profound variations around the world – from a fraction of a per cent of the GDP per capita to over 100%, and have a strong impact on international migration flows (McKenize, 2007). We argue in this paper that an association between democracy and the regulation of exit is non-linear. For stronger democracies one can observe the usual negative association between regulatory burden and democratic quality – when bureaucracy becomes somewhat less accountable to the society, it starts abusing its regulatory powers to extract rent. However, such association does not extend onto weak democracies and autocracies – over this range of political regimes the cost of passports flattens and even shows sign of declining when democratic quality drops from intermediate to low levels.
There is now a large literature on the correlates of prenatal androgen exposure and various individual measures of performance in sports, business, or schooling. However, there is still relatively limited evidence of the impact of prenatal androgens on life achievement. Using data from the Russian longitudinal survey and measured digit ratios, we found that age-corrected market wages are nonlinearly correlated with low measured 2D:4D ratios signifying higher prenatal testosterone. Unlike earlier work on noncognitive correlates of labor market wages, our findings indicate a clear-cut optimum 2D:4D ratio for women’s wages with higher and lower 2D:4D being associated with lowered wages. However, the size of these effects are small, especially compared to the influence of education of income.
Why do oil-rich countries frequently experience civil wars? The most prominent theories on the oil-civil war relationship focus on mechanisms through which oil wealth induces government vulnerability. But oil wealth also provides an incumbent government with large revenues to spend on armaments and patronage—which dampens the propensity for civil conflict. This paper presents a formal model and empirical evidence that show how the heterogeneous effects of oil create a conditional relationship between petroleum wealth and different types of civil wars. Oil should dampen the propensity for center-seeking wars by allowing a government to invest in armaments and therefore reduce a challenger’s expected utility to fighting. Oil should increase the propensity of separatist conflicts when oil reserves are located in territory populated by groups that lack political influence in the capital. The inability of the government to credibly commit to these groups creates a bargaining friction that can be eliminated by fighting. Statistical associations support both predictions, and also demonstrate a net negative relationship between oil and civil war onset. The combined theoretical and empirical evaluation defies the general characterization of oil wealth as a "curse" for civil conflict initiation.
This study estimates the effects of a large scale trade policy on a development indicator like infant mortality, using the recent experience of African Growth and Opportunity Act (AGOA) affecting sub-Saharan Africa. The average difference in probability of death of children born to the same mother before and after AGOA in both AGOA affected and not-AGOA affected countries were estimated, using the retrospective Demographic and Health Surveys (DHS) from 30 sub-Saharan African countries. This helps in exploiting the within-mother variation, which is an improvement over the cross-country studies carried out till date. Findings suggest that infant mortality falls by about 7 to 13 infant deaths per 1000 which is as much as 9% to 16% of the sample mean. This result is robust to controlling for country specific linear trends and country level time varying indicators like GDP per-capita, average female literacy, commodity price index and political regime of the country. It was also found that uneducated women and rural women experience more decreases in infant deaths than educated and urban women. At the macro level, the effect seems to be taking place via increase in GDP per capita and increases in health expenditure per capita. Studying the heterogeneity at country level suggests that the low-income sub-Saharan African countries benefit more out of the policy change.
Since 2007, all insurance intermediaries face negligence liability that is supposed to reallocate risks and set economic incentives. Nonetheless, further measures are taken to improve consumer protection. So, the question arises does the liability rule influence the agents behavior, or not, and does it influence in the intended way, or not? Do court cases provide evidence for failure of the current liability rule? Based upon an economic analysis of liability rules, aspects concerning potential failures can be derived. An analysis of twelve verdicts suggests that understatement of intermediary responsibility as well as a potential overstatement of the consumer responsibility yields suboptimal results. Often, missing documentation reinforces that tendency.
There is widespread perception that international consumption of “conflict minerals” is a leading cause of brutal violence and armed conflict in the Democratic Republic of Congo (DRC). Policy responses include the U.S. Dodd-Frank Act of 2010, which regulates companies whose products contain conflict minerals, and the DRC’s ban on mining in three of its provinces during 2010-2011. We develop a theory to explain why the policies could backfire, causing violence to increase rather than fall. Our reasoning is inspired by Mancur Olson’s (2000) stationary bandit metaphor, research on conflict and natural resources, and a literature on the citizen ‘protection’ functions served (and coerced) by organized criminals. We test for the short-term policy effects by merging geo-referenced datasets on armed conflict, militarized mining sites, and mineral prices from 2008-2011. The evidence suggests the policies increased the incidence of violent conflict shortly after their enactment. The increased violence was targeted at civilians (rather than militias), but militia battles shifted from regulated tin, tungsten, and tantalum mining territories towards unregulated gold territories.
In establishing and consolidating strong centralized states absolute monarchs do not rely on sheer force alone but they also resort to the tactic of seduction whereby they buy the loyalty of potential rivals or dissenters. Our model attempts to elucidate the conditions under which an autocrat is more or less likely to grant substantial material privileges to the counter-elite so as to coopt them. In our setup, two equilibrium strategies are available to the ruler, opposition suppression and opposition confrontation. We show that more abundant resources help the autocrat consolidate his regime but that, when the counter-elite is more prone to venality, this does not necessarily help maintain the autocrat in power. We also propose novel insights derived from the application of our theory to present contexts, such as the Arab Spring.
This paper explores the connections between a divorce-related law change and its impacts on divorce, marriage and separation decisions in Brazil. We do this assessment by evaluating the impact of the most recent of these laws,the Constitutional Amendment n.66 (CA66). By doing this, we aim to check this law's overall impact and its immediate eefficiency which might be affected by the lack of information on the law change and its promoted facilitation of the divorce process.
Traffic congestion is a serious and costly problem in most large metropolitan areas in the United States. In theory variable tolls can be used to greatly reduce traffic congestion and improve transportation system efficiency. Evidence suggests the potential benefits in reduced travel time, improved travel time predictability, and reduced emissions are very large and far exceed the cost of implementation. The few examples of variably tolled highway facilities have generally produced positive results both in terms of reducing congestion and public acceptance. Despite these successes variable tolling (also known as congestion pricing) has been applied to only a very small fraction of congested highways and no region-wide congestion pricing proposals have been implemented in the United States. This paper considers possible explanations for the reluctance of public entities to implement region-wide congestion pricing programs. The analysis focuses on the objectives of the public entities responsible for transportation, the choices available to them, and the institutional structure that influences the inter-action of the entities.
Cloud computing technologies have the potential to increase innovation and economic growth on a large scale. But many users worry that data sent to the cloud can be accessed by others, to the detriment of the data owner. Consequently, they do not use cloud technologies up to its otherwise efficient level. In this paper, we design an institution that attenuates this problem. Inspired by existing certification schemes, we show that in equilibrium cloud service providers produce high accountability levels, users with a high preference for data security buy cloud services for a premium, certification agencies act honestly, and a certifier of certifiers, which we call cloud association, implements the welfare-maximizing data security standard.
What determines the politics of redistribution? The political economy literature suggests that redistributive policies are subject to political institutions such as electoral rules, political competition as well as the degree of fiscal and political decentralization. Others suggest that government welfare spending is correlated with subjective beliefs. In this paper, we test the hypothesis that government health expenditure - a proxy for redistributive policies - vary with the median voter’s belief about fairness. Based on data from 63 countries, we find that a stronger belief about fairness has a strong, positive, robust and significant impact on government health expenditure, controlling for political institutions. We speculate that variances in government health expenditure may be the result of different political equilibria, which in turn may be due to different beliefs.
There are two puzzles regarding to the urban unemployment in China. First, coverage of unemployment insurance is still very low compared to other social insurances. Second, the number of registered urban unemployed is much less than actual urban unemployed. This paper argues that the crowding-out effect between social assistance programs and unemployment insurance in China are among answers of above two puzzles. Government expenditure for the major social assistance program “Minimum Livelihood Guarantee Scheme” (“Dibao”) in urban China, which is managed by Ministry of Civil Affairs, increased from RMB2.2 billion in 2000 to RMB67.4 billion in 2012. Besides Dibao, some complementary social assistance programs such as medical assistance, education assistance and housing assistance are managed by different government departments who are in charge of health, education, housing policies etc. In this paper, we use two city-level datasets over 280 cities in China between year 2003 and 2009. We find that increasing social assistance expenditure are likely to reduce the number of registered unemployed, which implies some urban residents claiming social assistance are either leaving the labor market or had evaded from contribution for the unemployment insurance. Many urban residents do not enrol with unemployment insurance because the benefits from Dibao and other social assistance programs are higher than the benefit of unemployment insurance. Our paper suggests that the crowding out effect is a result of lack of coordination across different government departments. In the literature, the “fragmented authoritarianism” framework has been employed to explain the ineffectiveness of economic policy making in China. In this framework, each department is individually rational while the policy outcomes are collectively inefficient. We argue that the “fragmented authoritarianism” can be explained by the concept “political property rights” in New Institutional Economics.
Management scholars have expressed an increased interest in the strategic aspects involving the delivery of public services, including the study of the emergent public-private partnerships (PPPs) and the organizational choices made by public and private actors. In the present article, we analyze the determinants of the private scope in PPPs—i.e. the extent to which private actors are more involved in various, complex activities of the partnership—in a cross-country, cross-industry setting. We examine the effects of public and private cumulative experience in PPPs, and the potential impact of the national institutional quality and the level of industry development on the private scope in PPPs. Our model is tested through an empirical work using a database covering 807 cases, 11 industries and 66 countries. We find that host-country accumulated experience in dealing with PPPs and superior quality of institutions increases private scope. Our results also show that private experience leads to an increased involvement of private actors in countries with better institutions and when the industry addressed by the PPP is incipient. Hence, by highlighting the determinants of governance choices and extent of private involvement in PPPs, our study offers implications for both theory and practice in a topic that have still received little attention in the strategy scholarship.
Large-scale databases from the social, behavioral, and economic sciences offer enormous potential benefits to society. When made widely accessible, these databases facilitate advances in research and policy-making, enable students to develop skills at data analysis, and help ordinary citizens learn about their communities. However, as most stewards of social science data are acutely aware, wide-scale dissemination of such data can result in unintended disclosures of data subjects' identities and sensitive attributes, thereby violating promises--and in some instances laws--to protect data subjects' privacy and confidentiality. As the size, richness, and quality of social science data have increased, so too have the threats to confidentiality and the difficulty of the challenge of making such data widely available. In this talk, I outline a vision for disseminating large-scale social science data. In short, I believe a way forward for access to these data is an integrated system including (i) unrestricted access to highly redacted data, most likely some version of synthetic data, followed with (ii) means for approved researchers to access the confidential data via remote access solutions, glued together by (iii) verification servers that allow users to assess the quality of their inferences with the redacted data so as to be more efficient with their use (if necessary) of the remote data access. Throughout the talk, I highlight advances in each of the three components of the systems and indicate open research challenges.
The institutions that serve as foundations for American Jewish communities have undergone an evolution that are familiar to scholars of organization: they have developed the organizational rigidities, institutional inertia, and expensive infrastructure that are typically exhibited by other mature organizations. The American Jewish community, however, has also exhibited changing demographics that, combined with new communication technologies and historical developments, pose a challenge to current institutions and have exposed their severe inefficiencies. Consistent with life-cycle theories of institutional change, Jewish communities now exhibit an era of ferment, in which new organizational forms that are better suited for current demands are growing and posing challenges to incumbent institutions. This paper scrutinizes American Jewish institutions through through the lens of organizational economics. It observes that organizational economics is readily applied to these nonprofit institutions with social and religious missions, and it offers proposals for community leaders that are derived from organizational science.
Small-scale mining is an important economic option for many rural poor in the developing world. It involves tradeoffs, however, in terms of equity as well as both health and environmental impacts. Management that balances gains with negative side effects is a challenge given limited governance, as the current formal rules for mining are inadequate for the conditions of small-scale gold mining. Thus, we explore alternative institutional governance arrangements for small-scale gold mining to mitigate its negative effects by improving monitoring's effectiveness based on how miners: (1) commercialize their gold production; and (2) partake in local public goods. As producers, miners sell 'up the value chain' to buyers who are larger and thus may well be easier for the state to monitor and thus to regulate. The larger actors, in turn, could induce environmental compliance from small miners by sharing more surplus in bargaining in exchange for shifts in miner behavior that lessen larger actors' regulatory liabilities. As consumers, small-scale miners value public goods such as improved property rights and local infrastructure. Therefore, they might be willing to monitor each other's individual compliance if the level of public goods provided rises with total regional compliance. Our proposed method for exploring potential new institutions is artefactual field experiments complemented by qualitative field work on gold mining in two field sites within Colombia.
This study questions the existence of a substitution effect of the perceptions of the justice system on the use of social sanctions both at individual and country levels. Individual decision to trigger social sanction may be embedded in a group context. Indeed, it could be that country-level variables have an effect on the individual decision to participate to sanctioning activities. Three different group effects are considered: the endogenous effect, the contextual effect and the correlated effect. To address this issue, an empirical study is conducted using the 2010 data of the European Social Survey (ESS5). The use of social sanctions is measured by a proxy which is the individual decision to boycott. The estimation strategy relies on Shang and Lee (2011), with a two-stage estimator for probit models of endogenous and exogenous group effects, based on the Manski-Brock-Durlauf model (Manski, 1993; Brock and Durlauf, 2001) and Borjas and Sueyoshi (1994). Results indicate that individuals’ perceptions of justice have a substitution effect on the use of social sanctions. Whereas country’s average perceptions of courts have a substitution effect on individual use of social sanctions, country’s average perceptions of police have a complementary effect. This latter result shows different attitudes towards the monitoring and the punishment function of the justice system. Hence, the paper confirms the presence of an endogenous effect. Indeed, the country’s behaviors concerning social sanctions have a complementary effect on individuals’ decisions to participate to sanctioning activities.
Food safety crisis have led governments to increase the responsibility of food operators asking them to implement preventive efforts. In this article, we explore the relationship between firm size and its preventive efforts she does implement in order to avoid food safety outbreaks. We show two main results: First, when cross-contamination between units is unlikely, small firms provide higher preventive efforts than large firms. Second, when cross-contamination between units can occur, the effort-size curve may have an inverted U-shape. From our results we argue that when designing and implementing new food safety regulations, governments should consider both firm size and the type of food safety hazards.
In the early 20th century, coal mining firms took an intermediary organization of labor called “dormitory system.” High manual skills were dominant and the firms did not enter the inside of their coal mines. Under these conditions, the firms did not have any choice but to leave to dormitory heads almost everything about managing miners. In this study, we observe the experience of Aso Fujidana Second Coal Mine in the 1900s. It used the mining method which required traditional skills and the coal mining machines were not introduced. The miners were managed by the dormitory heads but the coal mine began the transition to adopting a direct employment system. We study the historical documents, “The applications of miners” for the coal mine. When entering the firm, the applicants had to be referred by someone who was confidential. We analyze a database from the applications and found that new entrants tended to be directly employed by the firm or the dormitory heads tended to become their referrers. Workers who had new skills for operating conveyance elevator which was newly introduced in the 1890s tended to be directly employed. Coal miners who were accumulated the needed manual skills were referred by skilled miner referrers. And we also found some coal miners qualified as a referrer after they applied. We infer that coal miners referred each other. They got their jobs across miners’ job information networks.
Economic growth in developing countries is characterized by ‘boom and bust’ growth and frequent shifts in growth regimes from stagnant or declining growth to accelerations in growth and back again to decelerating growth. We examine the political determinants of the magnitudes of growth accelerations and decelerations. We hypothesise that ‘ordered’ political institutions, where constraints exist on the discretion of the executive (whether in authoritarian or democratic regimes) are more likely to lead to a greater magnitude of growth during an acceleration, and/or minimise the fall in output during a deceleration. In contrast, more open political institutions (where executive recruitment is open and inclusive, as in a democracy) do not have a discernible effect on the magnitudes of growth accelerations and decelerations, though they may contribute to prolonging positive growth episodes. Our findings suggest that while much of the previous literature on the role of political institutions in economic growth has focused on the effects of democracy versus dictatorship, the key element of political institutions that is relevant for understanding ‘boom and bust’ growth is the predictability of these institutions, rather than their open-ness.
This paper proposes a procedure to indirectly measure the variable market transaction costs using threshold cointegration models to operationalize concepts of Institutional Economics. Among the advantages, the proposed procedure measures the exchange costs by means of widely applied cointegration models , decomposes those costs into transaction and transportation costs., requires only simple and generally available data, and its results are easy to interpret. Applying this procedure on the international market of ethanol, we found that the transaction costs incurred to export this biofuel from Brazil to United States range from US$ 0.55/gallon to US$ 0.63/gallon. The proposed procedure may be applied to different markets and it is potentially a useful tool for evaluating policies to increase market efficiency.
The paper demonstrates that even the established and verified facts of agreements among producers are not sufficient condition for cartel identification and, as a consequence, - prosecution of agreements participants. It requires looking at institutional details and the wider context of these and similar documents/actions appearance/occurrence. The research is devoted to the recent antitrust case against all Russian producers of the large diameter pipes (LDPs) on schedules of products delivery for one large buyer – OJSC Gazprom. This case illustrates that avoidance of wasteful outcomes of so-called hostility tradition in antitrust is important, hard and nevertheless possible task.
The main objective of this investigation is the role of economic analysis in Russian antitrust. Economic analysis serves for the qualification of the market positions of economic entities and for the determination of market conditions. Antitrust policy is the intersection of economics and law. Its development both in Russia and in the USA and Europe is governed by increasing role of economics. It makes antitrust law enforcement more flexible, conditioned by circumstances (the rule of reason) enhancing the role of economic analysis. It means that the qualification of the behavior of economic entities depends on the qualification of their market positions and market conditions in general. The study revealed that economic analysis is a powerful argument in a litigation procedure and significantly affects both its outcome and durability. However, the obtained results show that the Russia’s antitrust authority probably underestimates the role that economic analysis could play in litigation.
Existing empirical evidence that finds very high actual or potential return to some campaign contributions and wonders, if contributions buy influence, why more exchange does not occur. Other empirical work has found consistent long-term relationships of contributions from interest groups to politicians. Yet, models of influence buying have treated the exchange as a simple spot transaction. This paper develops a formal model of relational influence buying between a firm and a politician where campaign contributions are exchanged for policy favors in a self-enforcing contract. This contract provides several insights. First, not all favors that have positive joint surplus to the firm and politician are contractible. Second, the model predicts that horizons of politicians will reduce the ability to raise funds. Third, the model provides empirical predictions for when firms should lobby themselves or outsource and on the structure of legislation. The first can explain why more, apparently valuable, trade does not occur. I find evidence consistent with the horizon effects from US Congress people's age and term limits in US state legislatures. The third insight speaks both to potential regulatory implications and implications for managers’ influence activities. Finally, the insights from the model suggest empirical tools to detect influence buying without directly observing the favors.
This paper empirically investigates how organizational hierarchy affects the allocation of credit inside a bank. Using an exogenous variation in organizational design, induced by a reorganization plan implemented in roughly 2,500 bank branches in India during 1999-2006, and employing a difference-in-difference research strategy, we find that an increase in hierarchy of a branch decreases its ability to produce “soft” information on loans. Specifically, we find that an increase in hierarchy leads to more standardization of loans and rationing of “soft information” loans. Furthermore, this standardization leads to a reduction in performance on loans – delinquency rates and returns on similar loans are lower in more hierarchical branches.
Property rights in the New Institutional Economics correspond variously to facto possession, legal possession, and ownership. This paper offers a bottom-up account of possession that builds on salience based-accounts of conventions and on the NIE approach to property rights. Possession is a first cut at a legal ontology in an overall modular architecture of property. The legal ontology divides the world up into persons and things, and establishes associations between persons and things. These associations will be in the interest of use, and so possession will usually require stylized duties of abstention on the part of other potential users. Depending on the nature of the group, the resources, and the universe of possible uses, duties of abstention can be implemented though norms of exclusion or governance of particular uses. What counts as a “thing” emerges from a combination of possession and accession, and so these aspects of property form a basic module, which serves as a basic default regime that can be displaced by more refined rules of title and governance. Possessory customs tend to be formalized into law, and yet for reasons of information cost, basic notions of possession retain their importance in many, especially informal, contexts. From the basic modular architecture many of the puzzling features of possession receive an explanation.
Praised for their ability to overcome transaction costs and reduce externalities of water distribution, irrigation districts formed rapidly throughout the United States in the 20th century. To better understand and quantify the gains, I compare and contrast the smaller acequia organization with the large centralized irrigation districts in New Mexico. Utilizing the Social-Ecological System framework, I highlight the distinction between irrigation districts and acequias. Next, I conduct a hedonic difference-in-difference analysis comparing counties that formed irrigation districts to those that continue irrigating under decentralized acequias from 1910 to 1978. I find the central districts increase agriculture land values by nearly 12 percent.
We examine the impact of enforcing non-compete covenants (CNC) on the formation and performance of new firms using matched employer-employee data on 30 US states. To identify the impact of CNC, we exploit the inter-state variation in CNC enforcement along with the fact that courts do not enforce such covenants between law firms and departing lawyers in any state. Using a difference-in-difference-in-difference specification with law firms and firms that are not within-industry spinouts as the baseline, we find states with stricter CNC enforcement have fewer, but larger within-industry spinouts that are more likely to survive their nascent years, and conditional on survival, grow faster during those years. These results are consistent with CNC enforcement having a selection effect on within-industry spinouts. Particularly, with stricter enforcement, only founders with higher-quality ideas and resources choose to overcome CNC-related barriers, which reduces entry rate but increases observed short-term performance of these spinouts.
The state is likely to play a crucial role in coping with major environmental challenges such as climate change, biodiversity loss and the degradation of ecosystems – in both developed and developing countries. Yet, empirics show significant differences in environmental outcomes between countries. This paper analyzes whether differences in reaching environmental goals can be attributed to different types of political regime, different levels of economic development, and different levels of state capacity, using cross-sectional time-series data for 132 countries from 2000 till 2010. As independent variable, we use the dimension Ecosystem Vitality of the 2012 Environmental Performance Index (EPI) in order to approximate a country’s performance in reaching environmental targets. As main explanatory variables, the summary Polity IV score determines the regime type in a given country in a given year, per capita income represents the level of economic development, and ICRG’s bureaucracy quality reflects a state’s capacity. The results show that economic development has a non-linear effect on environmental performance: As an economy develops, environmental targets are less likely reached; after passing a certain threshold, economic development has a positive effect. But neither the regime type nor the state capacity has a statistically significant effect on environmental performance. Contrary to expectations, the effect of economic development does not interact with the regime type or the state capacity.
Little is known about the empirical determinants of state formation and dissolution, despite a rich theoretical literature on the subject. This paper attempts to fill that gap by treating the dissolution of the Soviet Union as a natural experiment in state breakup. I exploit regional variation in pro-secessionist protests across the 184 provinces of the Union to measure varying incentives to secede. This allows for a test of economic theories of secession. These theories predict that the incentive to secede should be determined by the cost of public goods provision, as well as preference heterogeneity, income inequality, democratization, and trade potential. I find strong evidence for the existence of a trade-off between size and heterogeneity in shaping incentives for secession, but other factors only receive qualified support.
Franchising is a significant force in the American economy. As of the 2007 Economic Census, roughly ten percent of businesses are either a franchisee-owned business or are owned by a franchisor. While there has been significant research on the reasons for franchising, little work has examined the outcomes. This paper attempts to fill that gap. We employ a two stage process to determine how a business's productivity is impacted by being owned by a franchisee. The first stage uses data envelopment analysis to calculate each location's efficiency and obtain a ranking. These are then used as the dependent variable in Tobit regressions. Our results show that franchisee-owned stores in the retail trade sector rank higher and are more efficient than their franchisor-owned counterparts. We conclude by pointing out ways that our future research can build off of this paper.
Public perception in Thailand considers the military beyond its designated role of providing national defence and security. The military is also the protector of the throne and the defender of the righteousness. This is why coup d’etat in Thailand is welcomed and frequently perceived as anti-corruption by the public. Corruption is repeatedly alleged for the military to stage a coup. It is interesting to see how the military could lead the fight against corruption. However, this paper reveals that the military did not fight against corruption. In fact, it empirically worsens corruption situation in Thailand by intervening through the national budgetary process in the disguise of elite recruitment in public authorities. Distortion in budget allocation created by this intervention causes competition for political power and economic resources to proliferate and corruption is ensued.
Despite the critiques of ‘financial repression’, financial regulation can be designed as policy that would accommodate rather than antagonize financial development. This holds true in an uncertain world where incomplete contracting is the norm, since regulation can be linked to building institutional protections for savers/investors. In a governance framework, overcoming financial asset specificity devolves on institutional arrangements that protect asset-holders from contractual hazards by promoting verifiability of returns and confidence. Government regulation can supplement pecuniary with non-pecuniary returns to savers and provide safeguards that gradually increase confidence; this corresponds to a cumulative process of ‘institution-building’. Two issues stand out: fiscal sustainability and time consistency. The provision of safeguards is achieved in a manner that endogenizes fiscal sustainability: benefits bestowed by government to the investing public can be financed by a tax on financial returns. Furthermore, the buildup of an optimum stock of safeguards depends on the government’s rate of “political” time preference which interacts with the time preference of private agents. Since a major outcome of institutional development is the ultimate embodiment of safeguards in the attitudes of agents, consistency of interventionist policy over time is important. In this context, an adverse twist in confidence – as in the occurrence of a crisis - can render the existing institutional edifice inadequate and require new (or renewed) safeguards against rising asset specificity.
This article explores the links between socially beneficial relational contracts and corruption. The model considers a context where responsibility for a relational contract is delegated to a supervisor who cares in part about the total profit the relationship generates, and in part about side-payments which they receive from the agent. An agent can both exert effort that is beneficial to society and make corrupt side-payments to the supervisor, the incentives for both come through self-enforcing contracts. We show that, under certain conditions, delegation to a such a supervisor may enhance the likelihood that a socially beneficial relational contract is sustainable. Moreover, the model allows us to consider the dynamic paths of bribes. We find that the link between corruption and agent performance is non-monotonic. Initially, corruption increases when the agent performs well, but after a certain time the relationship is either terminated or bribes are lowered as an incentive for the agent to induce effort.
The relationship between forensic laboratories and the other institutions of law enforcement varies widely over space and time in the United States. Some jurisdictions have their own local lab within the police department, some locate the lab within the district attorney's office, others depend on a statewide lab system either independent or under the state police, and others still contract with a private lab to process their forensic evidence. These different organizational forms may shift the incentives lab technicians and managers have to provide timely and accurate analysis and testimony. In this paper, I investigate how the relationship the forensic lab bears to the rest of the structure of law enforcement correlates with the quality of forensic analysis and testimony in a sample of trials that eventually led to convictions and, later, exonerations. Both within evidence types and across all evidence types, the expert prosecution testimony provided by employees of public crime labs is consistently worse than expert prosecution testimony given by employees of private forensic labs working under contract for the state. These results are robust to controlling for case characteristics, defendant characteristics, time trends, and state fixed-effects. Furthermore, there do not seem to be significant differences among public crime lab types: validity rates for crime labs controlled by the local police are similar to those controlled by the state police and to those that are independent from the police, suggesting the dictating formal independence may not be enough to insulate public lab from whatever forces are driving their poor performance.
We look at the economic functions of firms, markets, and contracts, and characterize the optimal scope of the firm. Governance structures appear as equilibria and are compared in terms of production costs - determined by a tradeoff between standardization and adaptation, - and bargaining costs – sometimes incurred when new prices have to be agreed upon. Under natural conditions, employment, markets, or sequential contracting weakly dominate all other equilibria. As firms become larger, gains from standardizing come at the cost of increasingly poor adaptation, ultimately bounding their scope. The model rests on standard assumptions, is consistent with the managerial literature on the scope of the firm, and makes predictions based on factors that do not play a role in contemporary theories of the firm.
Why have some post-colonial states done so much better in terms of democratic consolidation than others? We argue that we need to supplement existing research strategies - which focus on the role of inter-empire differences in institution-building or on the long term effects of geographic and climatic endowments - with an approach that directly measures the enormous amount of variation in colonial institution-building that took place within empires over time. By using novel data on colonial electoral institutions, we document that the substantial experience that many colonies had with elections prior to independence (even if this was often far short of full democracy) is a good predictor of countries’ post-independence prospects for democratic consolidation.
What explains cross-country differences in the cost of contract enforcement? Previous findings suggest that fewer legal complexities support lower contract enforcement costs. In addition, recent work finds that individuals may rely on informal, cultural means to enforce agreements. Building from these two main bodies of work, this paper seeks to understand the variation of the costs of enforcing contracts by examining how informal cultural enforcement mechanisms may substitute or complement formal legal procedures ultimately shaping the costs of contract enforcement. Cultural measures of trust, individualism, individual responsibility and an overall culture index dominate legal formalism suggesting a substitution effect. These results suggest that variation in contract enforcement costs may be better explained from cross-country differences in culture than formal legal rules.
We study why China suddenly exhibited a large surge in births in the 2000 Year of the Dragon by disaggregating birth rates at the city level. We define the dragon effect as a relative jump in birth rates compared to the trend. Prior to 2000 Asian nations with large numbers of ethnic Chinese --- but not China --- exhibited strong dragon year effects. We exploit the uneven economic growth of regions in China to understand the emergence of the dragon effect. We find that the dragon effect was most pronounced in rapidly developing cities having higher incomes, higher average education, and greater employment prospects as proxied by the share of non-local residents. Our main findings at the city level are supported by our micro-level analysis, where we show the dragon effect to be strongly correlated with educational attainment of family members and membership in a multi-generational household.
The reform of budget-sector entities enables us to compare the impact of different types of public procurement regulations in budget and autonomous organizations in Russia. Using the difference-in-differences methodology, we consider public procurements of two national universities in 2011–2012. All procurements of the second university were regulated by the requirements of old law 94FL. Procurements of the first university were regulated by the 94FL until June 2011. Later this university introduced its own Procurements Provision according to the new law 223FL. A comparative analysis of procurements of these organizations enables us to estimate the impact of the different types of regulations on the effectiveness of public procurement.
This paper explores how inequality increases corruption via electoral clientelism, bureaucratic patronage, and elite capture of policy process through a comparative historical analysis of South Korea, Taiwan, and the Philippines that shared similar conditions at the time of independence. It finds that success and failure of land reform, which was little affected by corruption but largely determined by exogenous factors such as external communist threats and US pressures for reform, produced different levels of inequality, which in turn influenced subsequent levels of corruption through capture and clientelism. In the Philippines, failed land reform maintained high inequality and domination of the landed elite in both politics and economy, which led to persistent political clientelism, increasing patronage in bureaucracy, and policy capture by the powerful elite. In contrast, successful land reform in South Korea and Taiwan dissolved the landed class and produced egalitarian socio-economic structure, which helped to maintain state autonomy, contain clientelism, promote meritocratic bureaucracy, and develop programmatic politics over time.
The literature on the optimal provision of public goods has neglected an important intrinsic social problem associated with public goods. Specifically, because public goods characterize a large part of the gains to many varieties of relationship (marriages, nation-states, firms, etc.), those public-good gains introduce a fundamental obstacle to efficient transacting. This limit on transacting deriving from public goods has been found to induce excess (Kaldor-Hicks inefficient) divorces after the American shift from fault to no-fault, thus identifying an essential normative limitation of no-fault regimes that was previously unappreciated. Because public goods play this important role in precipitating inefficient dissolutions of all kinds, this suggests that analysis of the efficient quantity of public-good provision should incorporate this novel issue. Hence, this paper presents a revised analysis of the standard public-good problem in which the social cost of public-good-induced inefficient dissolutions is incorporated. This analysis shows that the socially optimal quantity of public-good provision is reduced once this potential for inefficient dissolution is taken into account.
This paper uses a survey experiment to study whether limited information about inequality accounts for the (optimistic) beliefs and the (anti-tax) preferences of American voters. Unlike standard surveys, this study examines preferences for taxation while controlling for perceived economic opportunity, beliefs about how the economy works, and views about the sources of inequality. Random assignment to information exposure about income inequality is used to explore the relationship between awareness about income inequality and preferences for redistribution. The first effect of information is an increase in pessimism about economic opportunity. After exposure to information, subjects are less likely to believe that people who work hard can get ahead life. Subjects are also more likely to agree that personal connections are important for success. raises support for general (i.e. unspecified) government action against inequality by about 6 percentage points. However, the subjects who are exposed to information are not more willing to take specific action (pay higher taxes) than the control group.