Society for Institutional & Organizational Economics
This article provides the first experimental analysis of the effects of unemployment risk and insurance on specific skills investment, using both laboratory and online samples. We find that, even in highly permissive contractual environments, more generous unemployment insurance leads to a greater level of investment in specific skills that risk becoming obsolete. Subjects who invest in acquiring these skills also work harder at the experimental task. We see weak evidence that skill investment responds to unemployment risk. We find no evidence that more generous unemployment insurance creates labor market frictions in the form of workers waiting longer to take a new job after unemployment.
A critical insight emerging from the political behavior literature is that voters substantially vary in how much they know about politics. Specifically, recent work in political economy have documented citizens misperceive inequality, and these misperceptions matter significantly for preferences over redistribution. Empirical evidence shows that the extent to which individuals misperceive inequality varies considerably across nations. We argue and show formally that progressivity of the tax and transfer policies explains these variation. When progressivity is high, individuals are better informed about their position in the income distribution. Conversely, when progressivity is low, individuals are more likely to misperceive their position. We test these predictions across nations within a sample of advanced industrial democracies. Our findings indicate that the progressivity of the tax and transfer system is a significant determinant of the information gap regarding perceptions of inequality.
Most distributive theories in political economy understand individuals to be motivated by material self-interest, often approximated by their current position in the income distribution. It has become increasingly common, however, to also conceptualise material self-interest inter-temporally. This approach extends the more direct focus on effects of contemporary relative income (as in Romer 1975 and Meltzer and Richard 1981) and opens the door to arguments about insurance and risk (as in Sinn 1995; Moene and Wallerstein 2001; Iversen and Soskice 2001; Rehm 2009), and about social mobility and life-cycle profiles (Benabou and Ok 2001; Haider and Solon 2006; Alesina and Giuliano 2011; Rueda and Stegmueller Forthcoming). Distinguishing between redistribution (in the present) and insurance (against something that could happen in the future), however, is theoretically and empirically challenging. In this paper, we propose that the effects of insurance motivations on support for redistribution are income dependent, and conditional on the design of the social insurance scheme. We distinguish our argument from other theoretical alternatives and explore its implications through an observational analysis of European Social Survey data and a laboratory experiment designed to separate the influence of redistribution and insurance motivations, conducted through the Nuffield Centre for Experimental Social Sciences (CESS) in the United Kingdom and Chile.
Most U.S. states have a workforce development program that offers firms grants to fund training of new hires and existing workers. These training programs may help close skills gaps or may primarily serve local development goals. This paper explores the determinants and consequences of such programs. We describe the characteristics of program participants and estimate the effect, if any, on the amount and skill requirements of job vacancies posted by these firms. We create a unique data link between participating firms and the near-universe of online job postings collected by Burning Glass Technologies (BGT). If these programs overcome a market failure in updating worker skills, we expect to see a marked change in vacancy postings following receipt of a grant. If there are no such changes, then these programs may serve local development goals, but are likely zero sum across states. This research will provide a better understanding of whether and under what circumstances these programs can contribute to narrowing skills gaps. This agenda can then inform policy questions surrounding falling employment and stagnant wages for low- and medium-skill workers.
This paper examines the organization of work flows in multi-divisional firms, where the division of labour follows both a knowledge hierarchy with skilled workers at the top and less skilled workers at the bottom, as well as horizontal segmentation into divisions on the basis of the type of knowledge held by workers. We examine the commonly occurring case in which workers at the bottom of the hierarchy are the ones initially faced with non-routine problems that affect production. These workers are often unable to distinguish whether the problems they cannot solve require more advanced knowledge -as that possessed by their hierarchical superiors, or the type of knowledge held by workers from other divisions. Should workers pass these problems above to hierarchical superiors or sideways to peers from different divisions? What are the effects of such arrangements? We provide a theoretical framework that outlines the trade-off embedded by this decision and study its main effects on skills and performance. Using a comprehensive database of e-mail communication from a large multi-divisional company, we examine the work flows of employees and find evidence that is consistent with our model.
State Owned Enterprises (SOEs) comprise a significant proportion of economic activity in many countries, and typically trade-off profitability with political objectives such as employment generation. Using a newly constructed dataset, I causally estimate the impact of an earned autonomy program in India on SOE performance. Managerial autonomy allowed the board of directors of profitable SOEs to undertake strategic decisions without political interference. I find that autonomy allows managers to increase the capital stock of the firm, as well as increase their sales and profits; these impacts persist for at least twelve years after the program. I identify SOE managers’ career concerns as a mechanism for the programs' impacts: the probability a manager of a SOE joins a private firm board increases after it receives autonomy. These results indicate that large gains in SOE performance are possible without privatization, and may occur partly through SOE managers’ career concerns.
We analyze cooperation within a company setting in order to study external validity and consequences of a cooperative attitude. In total, 910 employees of a large software company participate in a fully incentivized online experiment. We observe very high levels of cooperation in a modified public goods game and the typical conditional cooperation patterns. When linking cooperation levels with individual decisions and outcomes within the company, cooperation attitudes in our experiment are predictive, for instance, for the receipt of non-monetary apprecia-tion awards distributed among work team members. Salary increases and monetary awards are preferably allocated to less cooperative employees. This relationship is mainly relevant for employees that work in individual performance pay schemes rather than under company performance pay. Existing differences in the production functions of work teams and heteroge-neity in team compositions allow us to anlayze mechanisms that can explain our results.
We investigate the causal effect of performance reviews – that is structured meetings between a supervisor and subordinate to discuss performance – and performance pay as well as their interplay implementing a 2x2 field experiment in a retail chain. In the performance pay treatments store managers receive a bonus for profit increases. In the performance review treatments store managers have regular meetings with their supervisors discussing their activities to increase profits. We find that performance reviews raise profits by 5%-8%. However, when additionally receiving performance pay the positive effect of reviews vanishes. Analyzing a simple extension of Bénabou/Tirole (2006), we rationalize this effect formally and provide empirical evidence that the use of bonuses changes the nature of review conversations.
Real-time performance feedback is one of the major trends in human resource management. However, insights about the implications of providing ongoing and timely performance information to employees are still scarce. We present the results of a randomized controlled trial involving 164 sales employees of a large railway catering company in Switzerland. In the presence of a relative incentive scheme, we find that real-time information about average performance levels can significantly increase sales productivity. In our setting, we observe a revenue growth of up to 3.9%, which corresponds to over 0.4 million Swiss francs additional revenue per year. This effect is mainly driven by employees performing just below the average productivity level. The top- and poorest-performing workers do not show significant reactions.
We apply computational linguistic models to Australian publicly listed firms’ reports to a gender-equality statutory agency to construct the first systematic measure of ‘corporate gender culture’—firms’ practices pertaining to the treatment of women across a range of dimensions, from recruitment and promotion to maternity leave and sexual harassment. While different practices are associated with female representation at different levels of the hierarchy (employees, managers, executives, board), the practice most robustly associated with firm performance consists in human capital formation opportunities open to all. We use a unique historical experiment that durably shaped gender norms in Australia to establish that: (i) corporate gender culture is shaped by local societal gender norms; and (ii) the relationship between corporate gender culture and firm performance is likely causal. Upon examining the impact of the introduction of government-funded parental leave in 2011, we observe that culture evolves slowly, but policy can shape gender diversity and corporate gender culture.
We develop a measure of corporate culture using coworker connectivity on LinkedIn's platform, and show it is strongly correlated with positive employee relations and satisfaction. Using state-level changes to employment agreements as shocks to explicit contracts, we find that these changes significantly impact employees in weakly connected firms, but have little to no effect on those at strongly connected firms. Our results suggest that firms with strong corporate culture are less dependent on explicit contracts to retain human capital. We document implications for firms' investment decisions and other outcomes.
This paper provides evidence on the effect of trust on innovation within firms. I build a new matched CEO-firm-patent dataset covering 5,753 CEOs in 3,598 large US public firms and 700,000 patents during 2000-2011. To identify the effect of CEO's trust, I exploit variation in generalized trust across the countries of CEOs' ancestry, inferred from their last names using de-anonymized historical censuses, as well as variation in CEOs' bilateral trust towards inventors. First, one standard deviation increase in CEO's generalized trust following a CEO turnover is associated with over 6% increase in firm’s future patents. Second, changes in CEO's bilateral trust towards inventors in different countries (i.e., different R&D labs within multinational firms) or from different ethnic origins in the same firm have comparable effects on inventors' patenting, controlling for CEO and other stringent fixed effects. Trust-induced improvements in innovation are driven entirely by higher-quality patents, consistent with a model in which CEO’s trust incentivizes researchers to undertake high-risk explorative R&D. Finally, I show that across and within firms, CEO's generalized trust is strongly correlated with a broader corporate culture of trust, as measured from the text analysis of one million online employee reviews. The evidence provides a micro-foundation for the well-known macro relationship between trust and growth.
The quasi-exogenous division of the French regions Alsace and Lorraine after the Franco-Prussian War allows us to provide evidence about group identity formation within historically homogeneous regions. Using several measures of stated and revealed preferences spanning over half a century, we show that being exposed to occupation and repression for many decades caused a persistently stronger regional identity. The geographical RDD results are robust across a wide range of specifications. We document two mechanisms using data on regional newspapers and regionalist parties. The differences are strongest for the first two age cohorts after WWII and associated with preferences for more regional decision-making.
This paper uses a natural experiment to study the effect of historical experience of democracy on norms of cooperation today. In the Middle Ages, the extinction of the Zaehringen dynasty from the absence of an heir resulted in some Swiss municipalities acquiring historical forms of democracy, but the others continued largely under feudalism until Napoleon intervened. Behavioral and survey measures show that individuals from treated municipalities display stronger norms of cooperation than individuals from control group municipalities. These differences persist due to cultural transmission, as well as economic prosperity, education, and better functioning of democratic institutions in treated municipalities.
Using a dataset of medical devices purchased by local Public Buyers (PBs), for each purchase we measure the difference between each item's price and its marginal cost. We define PBs' ability in purchasing as the PBs' fixed effect (FE) on that difference. Average prices vary substantially amongst PBs, and this variation is largely captured by PBs' FE. We then exploit in such dataset the exogenous termination of the mandatory reference price regime to assess how discretion affects procurement performance, given each PB's ability. We found that reduced PBs' discretion determines efficiency gains and losses for low- and high-ability PBs, respec- tively.
This paper documents: the channels through which local governments propagate a fiscal shock; and the corresponding reaction by firms in the affected upstream sector (municipal procurement). The shock is provided by an Italian fiscal rule, called Patto di stabilit`a dei comuni, which was tightened unexpectedly in 2008 and applied only to municipalities with population greater than 5,000. Using a difference-in-differences identification strategy, we estimate that this shock led to a 13-20% reduction of infrastructure spending in treated municipalities, or equivalently, an 80% reduction in the average municipality. In contrast, current expenditure was not affected. In the upstream sector, i.e., the infrastructure procurement sector, firms reacted to the demand shock by cutting capital rather than labor. We explore, and ultimately discount, the possibility that our estimates are confounded by the 2008 financial crisis. The capital/investment sector is thus found to be a pre-eminent channel of direct shock propagation. In addition, the fiscal demand shock is found to propagate disproportionately through those private-sector firms that are more exposed to the shocked sector. This finding suggests that direct shock transmission depends on the higher moments of the exposure distribution, beyond the average sectoral exposure that is represented by the input-output linkages. Using procurement-market data we rule out the possibility that our estimates are attenuated by spillover effects operating through competition in the procurement market.
Using data from drug procurement auctions in Russia and exploiting exogenous variation induced by two natural experiments, this paper first studies whether bureaucrats abuse their discretionary power when setting the reserve price: the maximum per unit price the government is willing to pay for a given drug. It then asks whether even in the environment characterized by a significant discretionary power of bureaucrats sufficient entry of firms can undo effects of discretion. Obtained results show that reserve prices are at least 8% too high as compared to the optimum: buyers could lower them by this amount, enjoying a one to one decrease in the final price with no increase in the probability of trade not happening. The second set of results indicates that entry can solve the problem of inflated reserve prices: an additional bidder causes prices to de- crease by around 8% to 9%. This effect is highly nonlinear: having more than one bidder versus one bidder causes prices to decrease by around 15% to 18%. Therefore my results suggest that even in an environment where reserve prices are inflated the legislator can undo these effects by ensuring that there are at least 2 participants in a procurement auction.
A constitution is the foundation of any democracy, and its text shapes the path of democratic development. But who chooses the framers of such a document? To resolve this issue, elites in both France (1789) and Denmark (1848) adopted a lottery-based procedure to choose the members of their respective constituent assemblies. They divided their chambers into groups by lottery, and then these groups chose the constitution drafters. Such procedures were put in place out of a distrust for potentially subversive political factions or influential elites, and with the idea that partial randomization prevents corruption and ensures the representation of a cross section of politicians. Yet how did this affect the composition and ultimate development of these constituent assemblies? To answer this question, we analyze in detail the effects of partial randomization in France in 1789, and Denmark in 1848. We assembled a micro-level data set of the lottery based procedures, biographies of elite politicians and their parties, and legislative activity from both 18th century France and 19th century Denmark archival records. We first check the randomization, and demonstrate that these partial lotteries were, in fact, truly random. We then demonstrate that this lottery-based procedure prevented the concentration of political blocs into any one committee, particularly the radical and pro-democratic left, and therefore prevented co-optation of the constituent assemblies. It also ensured the framers of the constitution were less likely to be older and aristocratic. Finally, we use an instrument variable approach to show how selection of a wider set of elites affected the ultimate constitution text, and the design of this new democracy.
We examine the complementary roles of state weakness, elite divisions, and popular grievances on rebellion. We argue that state-building efforts increase division between local and national elites, which undermines provincial peacekeeping efforts and provides an opening for popular rebellion. For a given level of grievance, revolts from below are therefore more likely to be attempted and more likely to spread in areas where local elites harbor grievances over earlier state-building efforts. We provide support for the theory using subnational data on rebellion, tax centralization, and drought from the late 17th-century to the Mexican War of Independence. We show that droughts led to peasant uprisings throughout the late colonial period, but it was not until the weakening of national institutions following the fall of the Bourbon dynasty in 1808 that these uprisings grew into a large-scale insurgency. Insurgent mobilization during the Independence War was more likely in drought-affected areas that had higher exposure to the Bourbon centralization of tax collection, which reduced the rents available to the local elite and thus elite loyalty to the government.
This paper argues that political elites may weaken fiscal capacity in anticipation of new groups coming to power. One such instance occurred in the Colonial Indian provinces, where incumbent political elites hollowed out tax capacity in anticipation of franchise expansion. While studies of intra-elite competition have focused on economic inequality as a key factor in shaping elite motivations, the paper argues that high-caste elites in this era, who were worried about their caste dominance, weakened institutions to limit the ability of newly elected elites to desegregate public goods to lower castes. As elite bureaucrats as well as local tax collectors they enabled landed elites to avoid agrarian tax payments and weakened the local bureaucratic machinery. Using a historical dataset from 1914-1925 and novel micro-level measures of land tax collection, tax avoidance, and the size of the bureaucracy, the paper demonstrates that fiscal capacity declined after franchise expansion in the districts with higher levels of inter-caste inequality and higher land inequality.
This paper explores how a relational contract establishes a norm of reciprocity and how such a norm shapes the provision of informal incentives. Developing a model of a long-term employment relationship, I show that generous upfront wages that activate the norm of reciprocity are more important when an employee is close to retirement. In earlier stages, direct incentives promising a bonus in exchange for effort are more effective. Then, a longer remaining time horizon increases the employer’s commitment. Generally, direct and reciprocity-based incentives reinforce each other and should thus optimally be used in combination. I also show that more competition can magnify the use of reciprocity-based incentives. Moreover, with asymmetric information on the employee’s responsiveness to the norm of reciprocity, an early separation of types is generally optimal. Then, the principal might benefit from asymmetric information because a firing threat is only credible if the employee potentially is not reciprocal.
This paper addresses the following practical question: given an existing incentive contract, what information must a manager acquire to determine how to improve upon that contract? We use a canonical principal-agent framework under moral hazard and assume the principal has productivity data corresponding to some status quo contract. Our main result shows that if the principal has a priori information about the agent’s marginal utility function, and she carries out an experiment in which she perturbs the existing contract, then she can estimate how the agent will respond to a change in his marginal incentives, as well as how the agent’s marginal incentives will respond to any other perturbed contract. The information provided by such an experiment, therefore, serves as a sufficient statistic for the question of how to locally improve upon the existing contract optimally. The same informational requirements hold, and an analogous sufficient statistic result is obtained, when the principal is restricted to choosing from a lower-dimensional parametric class of contracts; e.g., linear contracts. We also describe the informational requirements for assessing global optimality, where local information like the type described above is insufficient.
Progress results either from diligent, time-consuming work or from creative inspiration. Consider an agent looking for a solution to a problem while facing a deadline. The agent dynamically decides whether to look on the diligent road or on the creative road. Progress arrives stochastically and the diligent road leads to a solution eventually. The creative road is quicker, but sometimes infeasible. Looking on the creative road provides information about its feasibility. Optimal choices are non-monotone. The agent focuses on creative work if the deadline is soon or far. He concentrates on diligent work for intermediate time remaining. A principal who cares about both screening and output offers one of two contracts: (i) A short deadline and tenure for creative solutions, or (ii) instant tenure and promotion for all creative and some diligent solutions. Our applications are academic careers, election cycles and policy reforms, and product innovation.
Experience is a major source of knowledge. Could institutions be improved by eliciting the additional knowledge held by experienced individuals? In this paper, I show that experienced individuals are more critical of institutional quality in several areas of the law. Moreover, performance indexes built with experienced subsamples substantially alter country rankings. I argue that more knowledge leads experienced individuals to revise the more benign view held by inexperienced individuals. Moreover, experience is more effective than alternative sources of knowledge, including education, which seemingly reinforce benign and arguably incorrect assessments of institutional quality. After observing how this “experience effect” varies systematically across countries, I conclude by proposing that evaluations of institutional quality should focus on experienced individuals and cautioning against econometric inferences based on assessments made by the general population.
The emphasis on “fit” as a hiring criterion has raised the spectrum of a new form of subtle discrimination (Bertrand and Duflo 2016). Under complete markets, correlations between malleable characteristics and outcomes should not persist (Becker 1957). Yet using data on 1,901 U.S. Supreme Court oral arguments between 1998 and 2012, we document that voice-based snap judgments based on lawyers’ identical introductory sentences, “Mr. Chief Justice, (and) may it please the Court?”, predict court outcomes. The connection between vocal characteristics and court outcomes is specific only to perceptions of masculinity and not other characteristics, even when judgment is based on less than three seconds of exposure to a lawyer’s speech sample. Consistent with employers mistakenly favoring lawyers with masculine voices, perceived masculinity is negatively correlated with winning and the negative correlation is larger in more masculine-sounding industries. The first lawyer to speak is the main driver. Among these petitioners, males below median in masculinity are 7 percentage points more likely to win in the Supreme Court. Female lawyers are also coached to be more masculine and women’s perceived femininity predict court outcomes. Republicans, more than Democrats, vote for more feminine-sounding females, while Democrats, but not Republicans, vote for less masculine-sounding men. A de-biasing experiment finds that information reduces 40% of the correlation between perceived masculinity and perceived win, and incentives reduce another 20%. A model shows how the information treatment identifies statistical discrimination and the incentives treatment identifies taste. Perceived masculinity explains additional variance relative to and is orthogonal to the best random forest prediction model of Supreme Court votes.
How is novelty created in art, science, institutions and culture? In this paper I explore this question through an analysis of data from the Song Explorer podcast, where composers describe how they created a specific song. I mine their accounts to classify their processes into seven different, but not mutually exclusive, theories of the creative process. The result of this exercise suggests that the recombination of existing songs is a major process for the creation of new successful songs. The second step considers what kind of recombinations are associated with high impact. For each song in the sample I have one or more other songs which were explicitly indicated as an influence or inspiration. I use the music genre classification system Every Noise at Once, that provides a map of over 1,800 genres and millions of songs to create a set of descriptive statistics of the similarity of each song to their inspiration-songs. These statistics are then used as explanatory variables in a regression that seeks to explain impact (YouTube views per day since the songs` video release), while controlling for other determinants of song impact, such as the artists’ established level of popularity. The results confirm the optimal differentiation hypothesis, found by research in the areas of science, technology, economics, and politics, that the simultaneous presence of conventionality together with novelty, and not just one or the other, is a major determinant of creativity and impact.
Liability laws designed to compensate for harms caused by defective products may also affect innovation. We examine this issue by exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical implants. Difference-in-differences analyses show that this surge in suppliers' liability risk had a large and negative impact on downstream innovation in medical implants, but it had no significant effect on upstream polymer patenting. Our findings suggest that liability risk can percolate throughout a vertical chain and may have a significant chilling effect on downstream innovation.
Patents grant an inventor temporary monopoly rights in exchange for the disclosure of the patented invention. However, if only those inventions that are otherwise already visible are patented (and others kept secret), then the bargain fails. We use exogenous variation in the strength of trade secrets protection from the Uniform Trade Secrets Act to show that a relative weakening of patents (compared to trade secrets) adversely affects patenting of processes more than that of products. Arguing that processes are on average less visible (or self-disclosing) than products, stronger trade secrets have thus a disproportionately negative effect on the disclosure of inventions that are not otherwise visible to society. We develop a structural model of initial and follow-on innovation to determine the effects of such a shift in disclosure on overall welfare in industries characterized by cumulative innovation. In counterfactual analyses, we find that while stronger trade secrets encourage more investment in R&D, they may have negative effects on overall welfare - the result of a significant decline in follow-on innovation. This is especially the case in industries with relatively profitable R&D.
Prices of biopharmaceuticals in the United States exceed the prices of the same drugs negotiated by foreign governments which, in turn, exceed their marginal costs of production. The paper provides a tractable theoretical model that explains these stylized facts while taking account of the structure of the industry. The explanation involves arbitrage-deterrence due to oligopolistic limit-pricing: manufacturers would reject proposed foreign prices any closer to marginal cost because the resulting price differentials would trigger massive arbitrage into the higher price US market. The model is used to predict the consequences of four policies proposed to reduce domestic drug prices: (1) facilitating drug imports from the European Union and Canada; (2) requiring that Medicare pay the same prices for drugs as foreign governments; (3) lowering entry barriers in the downstream channel; and (4) financing the services of downstream players (wholesalers and pharmacies) from manufacturer profits from domestic sales instead of from markups over manufacturer prices. These price-reducing policies would eventually depress drug innovation. Finally, I identify the least expensive complementary policy the government can utilize to maintain the lower domestic price while restoring innovation to its previous level.
Based on data from a comprehensive benchmarking study on buyer-supplier relationships in the German automotive industry, we show that more trust in a relationship is associated with higher idiosyncratic investment by suppliers and better part quality—but also with more competition among suppliers. Both associations hold only for parts involving comparatively unsophisticated technology, and evaporate for parts involving sophisticated technology. We rationalize all these observations by means of a relational contracting model of repeated procurement with non-contractible, buyer-specific investments. In relationships involving higher trust, buyers are able to induce higher investment and more intense competition among suppliers—but only when the buyer has the bargaining power. This ability disappears when the bargaining power resides with the supplier(s).
Markets in developing countries are characterized by long tails of inefficient and poorly run firms and by significant misallocation of assets – two symptoms that the market process that normally reallocates poorly run assets to better managed firms does not function well. This paper provides a detailed study of the Rwanda coffee industry, a context characterized by widespread inefficiencies and that has seen in recent years a process through which large multi-national groups have been integrating backward and acquiring a significant number of mills. Preliminary difference-in-difference results suggest that, controlling for mill and year fixed effects, a mill acquired by a foreign group improves productivity and profitability. Using a uniquely detailed survey panel we document how foreign groups change mills performance. Foreign groups change managers upon acquisition, recruit younger, more educated and higher ability managers and pay these managers a significantly higher salary, even conditional on manager characteristics. These “better” managers explain about half of the better performance associated with foreign ownership. Relative to other managers changes, managers of foreign groups attempt to implement more changes after being in charge of the mill, enjoy more autonomy from owners, but face more resistance from mill’s other constituencies. Domestic-owned groups have also expanded but are, in general, not associated with improvements in performance. We discuss implications for organizational change and for fostering market development in emerging countries.
The relational contract at the heart of an investment banking relationship is valuable because it engenders and requires mutual trust in a setting where conflicts of interest are significant and are not easily resolved through formal contract. But a bank’s ability to commit to a relational contract depends on internal governance mechanisms that align the interests of individual bankers with those of the bank. We argue that increasing complexity in investment banks weakens internal governance and estimate a causal model that indicates that the likelihood of a relationship being broken is increasing in bank complexity.
How do political elites reactivate salient collective memories to entrench their power? We study this question using data from the Russian Federation under Putin. We document a substantial recollection campaign of the traumatic transition the Russian population experienced during the 1990s, starting with the year 2003. We combine this time discontinuity in the recollection of negative collective memories with regional-level information about traumatic experiences of the 1990s. Our results show that Russians vote more for the government, and less for the liberal political opposition, in regions that suffered more during the transition period, once memories from the period are recalled on state-controlled media. We then provide additional evidence on the mechanism and find, using a text analysis of 3,832 local newspapers, that recollection of the chaos of the 1990s in local newspapers is associated with higher electoral support for the government.
Do warlords, as substitutes for the state or “stationary bandits” in the sense of Mancur Olson, promote economic growth? This paper provides evidence on the warlords’ significant positive effect on China’s economic growth in the early twentieth century. By treating the sudden death of Yuan Shikai (1859-1916), “the Father of Warlords”, as a quasi-natural experiment, I find that firms in counties occupied by warlords (i.e., with at least one garrison there) grew faster than counties without such warlords during the succeeding Warlord Era (1916-1927). To exclude potential reverse causality I use the distribution of the New Army garrisons, the national military forces in the previous empire as an instrumental variable. The results of the instrumental variable estimation are consistent with the baseline results. The evidence supports the positive effect of warlords, both directly through investment and indirectly through the provision of public goods, reduction of the tax burden, and maintenance of social stability. These results are consistent with Mancur Olson’s argument that stationary bandit has an encompass interest to provide a peaceful order and other public goods in exchange for taxation. The heterogeneous effects of warlords are also examined. The empirical results suggest that the positive effect of warlords is weakened in those counties that (1) were more easily attacked by others, causing warlords to become short-sighted and less likely to promote growth, as Olson argued, and (2) had abundant mineral resources that could be easily exploited without the need to promote broader development, consistent with the resource curse argument.
We assess the effectiveness of using career incentives to motivate bureaucrat performance. We collect data on the career history of all Chinese Communist Party (CCP) secretaries, who were in power in any of China’s 334 prefectures between 1996 and 2014. We identify the causal effect of career incentives on performance by exploiting variation in the competitiveness of promotions. We find that increased promotion likelihood causes bureaucrats to adopt a strategy that relies on real estate investment and rural land expropriation, resulting in faster growth in construction employment, higher secondary sector GDP growth; but also suggestive evidence that they lower investment in education and health. We corroborate our findings using survey and remote sensing data, and present evidence that expropriations are positively correlated with adverse individual outcomes, with arrests of local officials, and with the emergence of "ghost cities".
When and why do authoritarian governments in the post-colonial states promote non-state legal orders, such as customary law and Sharia, that seemingly undermine state monopoly on rule-making and enforcement? The conventional wisdom is that non-state legal orders persist in post-colonial settings due to weak state capacity, path dependency, or culture. In contrast, I argue that promotion of non-state legal orders is a rational political strategy pursued by political leaders who aim for 1) gaining additional legitimacy; 2) increasing discretion; 3) coalition-building, and 4) signaling autonomy vis-à-vis the metropole. If the benefits are so appealing, why then do some political leaders pursue this strategy, while others don’t? I assume that the major costs for a ruler are that non-state legal forums might be hijacked by the challengers to their rule and that the metropole might punish the peripheral leaders for undermining the established legal order. Therefore, I argue that the promotion of non-state legal orders depends on the relative strength of the authoritarian ruler vis-à-vis the potential local opposition and the metropole. I develop this argument with an in-depth analysis of Chechnya under Ramzan Kadyrov’s rule (2007-present). I put contemporary Chechnya in historical and comparative perspectives with the de facto independent Chechnya (1991-1999) and the neighboring region of Ingushetia. The analysis highlights the political logic of informal institution-building.
Much of the economics and business literature notes a pronounced decline in entry barriers in many industries over the twentieth century. In the motion picture industry, since the Hollywood studios rose to dominance in the 1920s, many attempts were made to enter and compete with Hollywood, yet almost all strategies that did not involve acquiring an incumbent failed. This paper examines thirty-odd attempts to enter global film production and distribution, most of them post-1920. It analyses and compares the strategies, business plans and business models between firms, countries, and historical eras and tries to explain why most of them failed. The paper is based on painstaking research on sources for each case and includes mostly non-US and mainly European cases. The findings could shed light on the nature of entry barriers, and on the economics of entry and on the formulation business models—i.e. why almost any entrant, even those with almost unlimited capital, excellent management knowledge and business models that looked great on paper, still failed in the end.
Economists have long debated the effect of technological innovation on employment. The development of sound motion pictures in the late 1920s provides one of history’s most evocative examples – film historians have long believed that the transition to sound cut short the careers of a number of silent film stars. However, whether this was due to the new technology itself (actor careers are unpredictable at the best of times), and if so, whether more than a small number of famous stars were affected, has not been explored systematically. In this paper, I analyze a data set of nearly 10,000 actors who played in motion pictures from 1920 through 1940, inclusive. I find that the transition period is associated with a substantial increase in career terminations, not only among major stars, but also among more minor actors. However, I also find that sound films raised hazard rates generally, so that whereas the silent era is associated with a hazard rate that is 30-to-50 percent lower than that of the transition period, the sound era it is associated with only a 10 percent lower hazard rate. Finally, I calculate that the total number of actors cast in feature films rose substantially in the sound era (partly reflecting increased demand spurred by the innovation), illustrating the potentially heterogeneous effects of innovation on employment.
Vertical integration in cable television markets in the United States has long generated policy controversy. The 1992 Cable Television Consumer Protection and Competition Act, bolstering antitrust laws, sought to limit certain vertical arrangements between cable TV systems and cable TV program networks. Network Neutrality regulations adopted by the Federal Communications Commission in three separate orders (2007, 2010, and 2015), barred discrimination (via delivery speeds, etc.) on the basis of content ownership. Due to court proceedings and electoral outcomes, these orders have not been implemented. In 2019, the market is nonetheless increasingly disintegrated. Perhaps most illustrative of this is the rivalrous game played by Comcast, the largest U.S. cable TV system operator, and Netflix, the largest “over-the-top” video supplier. The firms have competed and cooperated, in shifting mixes, over the past decade. Today, Netflix – pioneering OTT models also supplied by Amazon, DISH, Hulu, Roku, Apple, Google and Disney – owns more valuable “cable programming” than any cable TV operator. Understanding how such market forces shape competitive margins is essential to crafting policy rules that support innovation and consumer welfare.
The Return of Martin Guerre, a book written by Natalie Zemon Davis (1983) and made into a move, is about a famous legal case in 16th century France where an imposter, Arnaud du Tilh, not only stole the identity of Martin Guerre ---a rich peasant who left his village of Artigat in Southern France and was unheard from for 8 years--but also his wife and his landed property. The wife, even when she knew of Arnaud’s fake identity was unwilling to expose Arnaud because she loved him. Things began to unravel, however, when Arnaud had a property dispute with Pierre Guerre, Martin Guerre’s brother-in-law, who suspected Arnaud as an imposter and sued him in court. Two trials were held. The judge in the first trial ruled that “Martin Guerre” was an imposter and condemned him to death. Arnaud appealed to the Parliament in Toulouse. At the second trial, just as the judge was about to acquit Arnaud of impersonation, in walked a one-legged man, the real Martin Guerre who had lost one of his legs when he went off to war. Arnaud de Tilth was sentenced to death and executed. My paper is divided into two parts. Part I discuss the story of Arnaud posing as Martin Guerre and Arnaud's prodigious memory and knowledge of the details of Martin Guerre’s life and Guerre’s interpersonal relationships with the villagers in Artigat. Part II, analyze this famous legal case, using the Economics/New Institutional Economics of Identity. No. of characters:1,427. (Words: 245) Submitted by Janet T. Landa (Email: jlanda@Yorku.ca And: janetlanda03@gmail.com ) to the “MOVIE AND TV INDUSTRY” panel organized by Janet Landa, Feb. 4, 2019. Final version of Abstract (slightly revised), submitted May 1, 2019.]
This paper develops a novel method for detecting auctioneer corruption in first-price sealed-bid auctions. We study the leakage of bid information by the auctioneer to a preferred bidder. We construct a formal test for the presence of bid-leakage corruption and apply it to a novel data set of 4.3 million procurement auctions in Russia that occurred between 2011 and 2016. With bid leakage, the preferred bidder gathers information on other bids and waits until the end of the auction to place a bid. Such behavior creates an abnormal correlation between winning and being (chronologically) the last bidder. Informed by this fact, we build several measures of corruption. We document that more than 10% of the auctions were affected by bid leakage. Our results imply that the value of the contracts assigned through these auctions was $1.2 billion over the six-year study period. We build a model of bidding behavior to show that corruption exerts two effects on the expected prices of the contracts. The direct effect inflates the price of the contract. The indirect effect reduces the expected price, since honest bidders are trying to undercut corrupt bidders. We find both effects in the data, with the direct effect being more pronounced.
Can experienced buyers achieve better outcomes? In this paper, we address this question by studying the ability of public organizations to arrange competitive procurement with proper contract execution. We argue that higher experience enables public buyers to set adequate contract terms and requirements, so they can attract ‘good’ suppliers and probability to execute the contract on time increases. We introduce a dynamic measure of relevant experience by estimating for each auction the number of successfully closed contracts of the buyer within the same interval of the reserve prices. Using data on the population of road construction contracts in Russia, concluded by public buyers of federal, regional and municipal level, we show that relevant experience increases the probability to execute contract on time, but it decreases the competition and this effect is stronger for the regions with higher perception of corruption.
This paper investigates the determinants and consequences of increasing a buyer's discretion in public procurement. I study the role of discretion in the context of a Hungarian policy reform which removed the obligation of using an open auction for contracts under a certain anticipated value. Below this threshold, buyers can use an alternative "high-discretion" procedure to purchase goods and services. At the threshold, I document large discontinuities in procurement outcomes, but I also find a discontinuity in the density of anticipated contract value, indicating that public agencies set contract values strategically to avoid auctions. I exploit the time variation of the policy reform to estimate the effects of increased discretion and find that discretion increases the price of contracts and decreases the productivity of contractors. I use a structural model to identify discretion's impact on rents from corruption and to simulate the effect of alternative value thresholds. I find that the actual threshold redistributes about 2 percent of the total contract value from taxpayers to firms and decreases the average productivity of contractors by approximately 1.6 percent. My simulations suggest that the optimal threshold would be about a third of the actual.
We use a confidential database of firms and procurement officials identified by Italian enforcement authorities as corrupt to document the factors associated with the corruption of municipal government contracts. We present four main findings. First, two auction types are more likely to be won by criminal (corrupt) firms: auctions with discretionary criteria (``scoring rule'' rather than first price) and auctions with discretionary procedures showing evidence that these procedures have been abused (negotiated rather than open bidding, with fewer than the formally required number of bidders). Second, discretionary auctions (both criteria and procedure) are chosen more often by corrupt procurement officials, but less often in municipalities in which authorities have identified at least one corrupt procurement official. Third, procurement administrators handle a smaller fraction of auctions in corrupt municipalities. Finally, when an auction is won by a criminal firm, there is a much higher rate of subcontracting to other firms that are themselves corrupt, with much of this effect coming via ex post subcontracts that were undisclosed in the initial bid. We suggest that our findings are most easily reconciled with a model in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this tradeoff by limiting discretion and maintaining high turnover in high-corruption locales.
EXTENDED ABSTRACT The overwhelming scientific consensus on the urgency of mitigating the potentially disastrous consequences of increasing levels of greenhouse gas emissions in the atmosphere and the emerging intergovernmental agreements on climate change have formed an external pressure that requires companies to develop business responses. Previous research has attempted to explain such responses to climate change mainly by drawing upon Carroll’s (1979) continuum of corporate social responsiveness. Accordingly, businesses would follow either defensive, accommodative or proactive approaches when they respond to climate change. These studies, however, are limited in its explanatory value as they view business responses to climate change as a task completed by an individual company rather than a task of companies embedded within wider business networks. In this study we proceed from the perspective that companies are, in fact, influenced by the interactions occurring as a result of continuous give-and-take exchange relationships. The urgent need to move beyond the view of companies as “isolated units” has been called for repeatedly (e.g., Wittneben et al., 2012, p.1435), but continues to receive little attention in the organizational studies literature. This study addresses this gap in the literature by adopting a network approach on business responses to climate change. It is through this move from the atomistic level of analysis and explanation to that of the business network that constitutes our theoretical lens to examine the empirical evidence that derives from five case studies of British energy supply companies. Indeed, by employing the network approach as a novel theoretical lens in the study of business responses to climate change, we provide a more comprehensive explanation of how companies respond to climate change. Key Words: Networks, Energy, Climate Change, Resources, Biases, Herding
The role of soft budget constraints in the development of new industries is ambiguous. On the one hand, they may accelerate growth by raising investment and intensifying competition. On the other, they may dull incentives to cut costs, raise efficiency and innovate. This article will explore this question in the context of the Chinese solar photovoltaics (PV) industry. I will test two hypotheses. One is that soft budget constraints have a negative effect on innovation, and that the innovation that has occurred in China is thanks to foreign or domestic investors who enforce discipline. The other hypothesis is that soft budget constraints support innovation, based on the idea that competition between local governments and their client firms in contemporary China resemble competition between business groups (keiretsu) in postwar Japan. The study will be based on secondary sources about the Chinese PV industry, including academic articles, trade publications and business reports. Focus will be on the relation between firms, local governments, the central government and various financial entities, domestic and foreign. Interactions between different levels of jurisdiction will be central. By studying the trajectory of the largest Chinese PV producers from 1999 - 2019, I aim to ascertain whether soft budget constraints helped or hurt innovation in the industry. Implications are relevant for policies to promote carbon industries to mitigate climate change.
Multinationals are currently operating in an (re-)emerging context of legal imperialism linked to the use of extraterritorial regulation. As a geopolitical phenomenon, legal imperialism involves actions by nation-states extending and enforcing political policy beyond their boundaries by means of unilaterally imposed legislation, thereby potentially infringing on the sovereign status of other jurisdictions. We consider two recent types of new trade regulations with extraterritorial reach that have come into effect during 2018, the US sanctions on Iran and the EU trade deal sustainability clause and explore the implications of this form of extraterritoriality on multinationals’ strategies, the one clearly unilateral, the other at least nominally bilateral and subject to negotiations between parties. The growing impact of extraterritorial jurisdiction is a phenomenon that has received little scholarly attention in the international business literature, despite being relatively salient in international relations and legal studies. This lacuna is unfortunate since understanding extraterritorial jurisdiction holds implications for the theory of the firm and international business, also significant managerial implications for MNEs as well as nation-state policymakers. It may also put the discussion on the role and nature of globalisation in a slightly different light.
How can we explain the evolution of rules? Drawing on a longitudinal empirical study of UN climate conferences involving 10,000 to 20,000 delegates in the period from 2005 to 2018, this empirical study aims to explain the process of enacting rules to reduce greenhouse gases. The study examines the dynamic interplay between actors’ interests and actors’ entitlements in generating reference points. This dynamic interplay appears critical in understanding the causal powers that affect the evolution of rules.
Despite firms’ growing engagement of nonmarket stakeholders—such as local communities and nongovernmental organizations—there has been little research on the emergence of contractual agreements between firms and nonmarket actors. Given that a very large number of such contracts are theoretically possible but only a small number exist, we seek to understand what factors explain the use of contracts to govern some firm-stakeholder relationships but not others. We ground our inquiry in transaction cost economics, which views governance as a means to infuse order into a relation where potential conflict threatens value creation. We propose that the property rights, externalities, and history of conflict that define the relationship between a firm and a nonmarket stakeholder influence the potential for conflict between them and therefore the probability of a contract to govern their relationship. We collect novel data on the location and relationships between indigenous communities and mining firms in Canada to identify a plausible exhaustive set of indigenous communities “at risk” of signing a contract with a mining firm. We measure the three factors defining the relationship between a firm and a local community by relying, respectively, on historically assigned property rights over a mining area, the mine-community colocation in a watershed, and archival records of protests and lawsuits. We find support for our propositions by examining which of the 5,342 dyads formed by 459 indigenous communities and 98 firms signed 259 contracts between 1999 and 2013.
Anticipating and mitigating the impact of regulatory changes are important tasks for firms; yet, this can be challenging when firms face constantly evolving and ambiguous policies such as those regarding climate change and when regulatory implementation is uncertain. We approach this issue by bringing government agencies center stage and exploring the factors that lead agencies to signal their policy implementation intentions as well as firm reactions to such signals in the context of electric power generation in the European Union from 2004 to 2009. We propose that agencies’ concern over resources motivates them to signal implementation intentions to political principals who support the policy goals in an effort to reduce uncertainty surrounding future budgets. We argue that firms will respond to these signals by altering strategy and reducing carbon emissions. We further show that the effect of resource dependency on agency signalling is moderated by pressures from local agency stakeholders and by the agency’s capacity to implement the policy.
Prior literature has shed important light on the effects of social or stakeholder activism on firm responsiveness, yet, has been limited to largely friction-less, competitive forms of exchange. In this study, we examine how social activism impacts firm responsiveness and end-user value outcomes in imperfectly competitive, hybrid forms of exchange. We argue that in an exchange characterized by imperfect competition and limited stakeholder “exit” mechanisms, social activism increases the associated exchange costs for the focal firm, resulting in reduced firm responsiveness to stakeholder demands and higher economic value loss (e.g. higher price) for the end-users. We further argue that this effect is moderated by the bargaining power of institutional actors, as well as the legitimacy and salience of activism domain. We find support for our hypotheses using a unique data from French municipal water contracts to private operators. Our paper highlights the “darker side” of social activism and suggests important boundary conditions to its effects, particularly in imperfectly competitive forms of exchange, carrying thereby both managerial and policy implications.
We define hybrid organizations as inter-organizational forms that exist across the boundaries of sectors. They merge objectives of different organizations or entities. As organizational innovations, they are at the intersection of changing state-market relations, offer novel institutional designs and rely on the growing role of civil society organizations as key stakeholders to creation economic and social value. Two types can be differentiated. The first type is when one focal organization embraces two distinct objectives: economic and social outcomes. The second type is obtained when at least two (or more) organizations from distinct sectors with distinct identities (firms, NGOs, non-for-profit, associations…) agree on mutual interests and decide to collaborate through pooling their resources, competencies, and objectives. In this paper, we explore the micro-foundations of hybrid organizational forms and compare the two types of hybrid organizations to explain when and how they are capable to take advantage of governance mechanisms – board composition, accountability and reporting systems. We also analyze how they internally incorporate the elements of their (potential) competing logics and how they maintain their hybrid nature over time. Moreover, we discuss what factors contribute to hybrid sustainability? We contribute in three directions. First, we identify the inter-organization collaboration as a distinct type of hybridity. We offer a comprehensive analysis of hybridity challenges and means of addressing them. Second, our framework advances that appropriate organizational governance, by monitoring dual performance objectives and aligning the interests of multiple principal stakeholders, remedies to internal tensions and institutional pressures. Third, our proposed analytical framework of hybrid organizations sheds new light on the novelty of hybrid organizational forms and discuss how they can continue to create value.
We investigate the incentives of policy makers to form self-enforcing international financial regulation agreements concerning financial market supervision. We model the cooperation of national regulators in a game-theoretical framework that considers financial stability to be an impure public good. Joint national supervisory effort is supposed to increase aggregate welfare in terms of a more stable financial system both on a global and on a local level by simultaneously generating incentives to free-ride. We apply standard methods from industrial organization in order to determine the number of signatories endogenously and analyze the efficiency of multilateral agreements. Our analysis indicates that partial cooperation is always feasible in equilibrium. However, the welfare gains are relatively small compared to potential gains in the socially optimal situation. These results in general highlight the difficulty of reaching an international supervisory agreement. Further analyses show that the incentives to cooperate are particularly sensitive to the existence of additional club benefits for members of a coalition.
Markets often use third-party certification labels to distinguish between higher- and lower-quality sellers, yet little is known about how certification impacts the evolution of markets.We exploit a policy change on eBay to explore how more selective certification affects entryand behavior across many online markets. Entry increases after the policy change and doesso more intensely in markets where more sellers lost certification. The quality distribution ofentrants exhibits fatter tails ex-post and some incumbents increase the quality of their serviceto maintain certification. The results inform the design of certification policies in electronic andother markets.
Looking out on the devastation wrought by the English Civil Wars, political philosophers found themselves contemplating how to harness collective action to obviate problems of collective irrationality. With the advent of competition law more than two centuries later, American courts were situated to take up certain manifestations of collective action: those that obtain from “conspiracy” to restrain trade. Building on the game theory advances of 1950, economists found ways to characterize the governance of antitrust conspiracies as the mechanisms by which conspirators harness collective action among themselves to obviate, or at least mitigate, their own problems of collective irrationality (profit-diminishing competition). Making the effort to characterize the governance of conspiracies can impose structure on the meaning of “agreement” in the antitrust case law to unreasonably restrain trade. From such a governance perspective, however, the district court’s analysis of “agreement” in the Apple eBooks price-fixing case, 952 F.Supp.2d 638 (S.D.N.Y. 2013), would appear to be truncated and underdeveloped to the point of being stillborn.
Disputes over transactions on two-sided platforms are common. Traditionally, platforms rely on their customer service or third party service providers to resolve such disputes. In this paper, we study crowd-judging, a novel crowdsourcing mechanism where users (i.e., buyers and sellers) on a two-sided platform volunteer to act as jurors to resolve disputes. While this mechanism improves cost-efficiency and enhances resolution speed, there are concerns that the jurors may exhibit ingroup bias -- that is, buyer jurors favoring the buyer in the dispute and seller jurors favoring the seller. Because the vast majority of users on such platforms are buyers, the existence of such bias could systematically sway the case outcome in favor of the buyers. Using a proprietary dataset from the crowd-judging centre of Taobao, this paper provides the first empirical analysis of crowd-judging, with a focus on quantifying ingroup bias. In our dataset, buyer jurors account for 88 percent of the active jury pool and cast more than 90 percent of votes. Inexperienced jurors exhibit statistical signicant ingroup bias: the probability that seller jurors vote in favor of the seller is approximately 9 percent greater than that of buyer jurors with similar experience. However, such bias disappears among experienced jurors. Under a majority rule system where experienced jurors cast more than 75 percent of the votes, we estimate that ingroup bias could influence the outcomes of at most 12 percent of cases.
We have conducted a randomized field experiment in collaboration with the nation's major public service broadcasting in which the capacity for viewing its programs has been randomly increased. We find the positive effect on the viewing time of the programs. Moreover, we find that the treated group has more positively evaluated the government's foreign policies than the control group after the treatment. To further study the mechanism, we use unsupervised machine learning to measure semantic similarity between the contents of TV programs and the official statements made by domestic and foreign governments. We find that programs in the public media are closer to the domestic government's statements than to the foreign government's statements. Programs in the private media, in contrast, show the opposite pattern. We find suggesting evidence that the positive evaluation on foreign policies is likely to be explained by individuals' being exposed to slanted information in favor of the domestic government. In contrast to previous studies showing media slant in the right-left political spectrum, this study adds a new empirical evidence that media slant in the domestic-foreign spectrum persuades viewers in support of the domestic government.
Do economic sanctions weaken the support for incumbent governments? To answer this question, we focus on the sanctions imposed on Russia after 2014 and estimate their effect on voting behavior in both presidential and parliamentary elections. For identification, we use cross-regional variation in (pre-determined) trade exposure to sanctioning and non-sanctioning countries and before-after voting data at both regional and district level. The sanctions caused an increase in support for the incumbent. This result is robust to alternative measures of sanction exposure, including a measure of trade loss, i.e., the difference between observed trade flows and counter-factual trade flows computed via a full-general-equilibrium gravity model. Absence of pre-trends, as well as several placebo estimations, supports the validity of the identification assumption. We then explore several potential mechanisms, including propaganda, electoral fraud as well as standard demand-supply effects. Overall, while it is hard to evaluate all the potential motives that sanctioning countries might have had, our results suggest that economic sanctions are not an effective tool for reaching one of their primary goals and can actually backfire.
This paper examines whether privately owned social media in China supplies less positively biased information to the market than traditional state-run media. Using a comprehensive sample from 2009 to 2016 of corporate news of newspapers and the opinions shared by investors in Guba, an online stock forum, we find that the tone of the traditional and social media of the same firm on the same day is positively correlated. However, this positive correlation is significantly reduced when the tone of the newspapers is positive. Consistent with the conjecture that Guba serves as a check against the bias of state-owned media, our result suggests that the tone of Guba’s postings is less optimistic than that of the newspapers when the latter are more likely to be positively biased. We find that political factors such as state ownership of the firms being covered and the political sensitivity of the time periods during which the articles are posted shape Guba’s monitoring role against the newspapers’ bias. Finally, the positive stock return response to the tone of the traditional media’s articles is significantly attenuated when it deviates positively from that of the social media, but we do not find any significant change in stock return response to the tone of social media when it deviates from that of the traditional media.
This paper examines the role of firm management practices in assembling a high quality and productive workforce. A large conceptual and theoretical literature describing ``what managers do,'' suggests management practices may have a large affect on the way firms assemble a high quality workforce. However, models of the labor market disregard management as an important feature of job matching and job mobility. To better understand whether structured management matters in labor markets, we match survey data that measures how firms manage people, measures of worker quality and job lows from linked employer-employee data. We have three key findings: first, the quality of production workers and managers fixed effects, and the use of structured management practices, are all positively correlated with firm productivity. Second, well-managed firms hire a larger share of their new recruits from the top of the worker quality distribution, and are better at retaining those workers. Third, well-managed firms fire less often, and are better at targeting low-quality workers for termination.
Does management matter for how plants weather times of economic crisis? Using firm survey data that was collected in Spain just prior to the Great Recession in 2006, we estimate the latent structure of management practices and describe two distinct styles. One style emphasizes - among others - flexibility and flatter hierarchies while the other contains more levels of hierarchy and incentive pay. We show that firm size and other observables do not accurately predict styles. By linking the firm survey to independently collected financial performance data we show that - conditional on having survived - the former firms performed significantly better during the Great Recession. The results are robust to a variety of specifications. Finally, we do not find a relationship between management styles and firm survival during this economic crisis.
Given the developments associated with demographic change and digitalization, firms encounter serious challenges to meet their demand for qualified workers. An employee-oriented human resource management is often regarded as one cornerstone in the increasingly fierce competition for skilled labor. International analyses based on cross-sections provide evidence that a professionalized HR management is positively correlated not only with measures of economic success like value added, sales, and profit (Bloom und van Reenen, 2007) but also with work quality like work-life balance and affective commitment (e.g. Bloom et al. 2009, Alfes et al. 2013). Our analyses go beyond this approach by applying panel data and fixed effects estimation. Moreover, we address the link of HR measures not only with work quality but also with actual turnover of establishments. For this, we employ the Linked Personnel Panel (LPP), a unique biennial panel dataset comprising survey information on both employers and their employees from 2012 to 2016. We show that HR measures are positive correlated with job satisfaction, commitment, engagement and turnover intention. Regarding actual turnover on the establishment level, however, our results offer a more differentiated picture: Both performance-related measures for managers and perfor-mance-unrelated measures reduce subsequent turnover, whereas performance-related HR measures for employees without managerial responsibilities increase actual turnover.
Learning in schools across the world has stagnated: children are in school, but often not learning. A shift in thinking about how to improve learning is emphasizing ''system-level'' reform. Management practices can be an important link in education systems, with evidence from the small set of countries sampled in the World Management Survey pointing to a strong positive relationship between measures of management and student outcomes. Yet the mechanisms behind this finding remain a black box. In this paper, we develop a simple theoretical framework that shows how management practices can affect school performance through channels traditionally examined in the personnel economics literature---the selection and incentive margins of agents. We then take the predictions of this framework to the data. Specifically, we build a new cross-country measure of management structures using the Programme for International Student Assessment (PISA), the largest education dataset currently available. We find that the positive relationship between management and student outcomes holds in 5 of the 6 PISA regions, and present evidence that is consistent with both the selection and incentive mechanisms proposed in the theory.
We propose a new model of managerial compensation contracts. Once employed, a risk-averse manager acquires imperfectly portable skills whose value is stochastic due to industry-wide demand shocks. The manager's actions are not contractible, and the perceived fairness of the compensation contract affects the manager's motivation. If the volatility of profits is sufficiently large and outside offers are sufficiently likely, the equilibrium contract combines a salary with an own-firm stock option. The model's predictions are consistent with empirical regularities concerning contractual shape, the magnitude of variable pay, the lack of indexation, and the prevalence of discretionary severance pay.
We develop a model where a buyer and seller contract over a service. The contract encourages the seller to invest and provides a reference point for the transaction. In normal times the contract works well. But with some probability an abnormal state occurs and the service must be modified. This puts the parties below their reference payoffs and may cause costly disagreement. We discuss why neither classical mechanisms nor lawyers’ standard approaches adequately deal with this issue. The adoption by the parties of guiding principles such as loyalty and equity as part of their contract can help.
Recent discussion on the restitution of cultural goods has focused on the form of restitution. Should cultural goods be returned as long-term loans or as permanent restitution? In this paper we explore the difference between these forms of restitution. Loan implies that the host country keeps the ownership but locates the cultural good to the country of origin. Permanent restitution shifts also the ownership to the country of origin. We find that the optimal form of restitution depends on the triggering factor. If restitution is triggered by the host country completing the restoration of the cultural good, restitution should shift the ownership to the country of origin. However, if the country of origin becomes more indispensable to the cultural good, the optimal form of restitution is a long-term loan.
We propose a theory of the scope of the firm and offer supporting evidence. The theory suggests that multi-business firms exist because they allow better deployment of factors that, because of sub-additive bargaining costs, cannot be traded in fractions or rented for short periods. It predicts that the businesses making up multi-business firms are “neighbors” in two senses: their service needs are correlated and factors specialized to one business are also productive in the other. We then look at a sample of acquisitions and document three regularities. First, input intensities of targets change to more closely resemble those of their acquirers. Second, the performance of targets does not catch up to that of their acquirers. Third, acquirers tend to select targets in industries that are similar to their own.
In this paper we estimate the push and pull factors involved in the outmigration of Jews facing persecution in Nazi Germany from 1933 to 1942. We build a structural model of migration under uncertainty on the life threat and then we perform counterfactual policy experiments in order to quantify how migration restrictions in destination countries affected the fate of Jews. Our analysis particularly highlights the role of social learning and information spillovers by assessing how migration outflows within social networks provided a signal of the severity of the threat to the peers. The empirical investigation makes use of a unique dataset that records the migration history of almost the entire universe of Jews living in Germany over the period.
This paper studies the effect of emigration on technological advances in sending locations after one of the largest migration events in human history, the mass migration from Europe to the United States in the 19th century. To establish causality, we adopt an instrumental variable strategy that combines local growing-season frost shocks with proximity to an emigration port. Using novel data on technological patents, we find that emigration led to an increase in innovative activity in sending municipalities. Additionally, we find that emigration led to higher unskilled wages in agriculture, an increased adoption of labor-saving technology and a shift towards the nascent industrial sector.
Do large emigration flows have a detrimental effect on generalized trust “back home”? What are the main social mechanisms through which emigration impacts upon the level of trust among those who remain in sending areas? We address these questions using both aggregate level data and individual level data collected in an original survey on social exclusion in Eastern Europe and Central Asia. Our panel models imply a negative relationship between emigration and trust which we confirm using large survey data. While most of our analysis is descriptive in nature the cross-country heterogenity of our sample helps to uncover possible transmission mechanisms from migration to trust. Our results imply that above a certain threshold, massive emigration flows are likely to contribute to social trap settings which particularly affect transition countries and hinder members of their their societies to cooperate to achieve joint benefits.
Does international migration contribute to cultural convergence or divergence between sending and receiving countries? We investigate this question both theoretically and empirically. We first develop a compositional model of international migration and cultural change, where divergence arises from self-selection on cultural traits and convergence arises from social mixing. The model is then adapted to allow for horizontal and vertical cultural transmission following Bisin & Verdier (2000). The model yields a rich set of predictions, which we test empirically using panel data from the World Value Survey and bilateral migration data for the period 1981-2014. We exploit within country-pair variation in cultural proximity over time and find support for the cultural transmission hypothesis. As the model with cultural transmission predicts, migration generates bilateral cultural convergence even if we exclude migrants from the pool of respondents in both countries (hence eliminating social mixing). It is also more likely in the long-run, especially after controlling for economic incentives to migrate and for initial cultural distance, which is consistent with the cultural transmission hypothesis (but not with compositional changes). Interestingly, international migration appears as a stronger and more robust driver of cultural convergence than trade. The results hold for a large set of time-varying cultural distance measures along different statistical and topical dimensions.
We use two randomized controlled trials in Bangladesh to study a simple water conservation technology for rice production called “Alternate Wetting and Drying (AWD).” Despite proven results in agronomic trials, our first experiment shows that AWD only saves water and increases profits in villages where farmers pay a marginal price for water, but not when they pay fixed seasonal charges. The second RCT randomly distributed debit cards that can be used to pay volumetric prices for irrigation water. This low-cost, scalable intervention causes farmers to place more value on the water-saving technology. Demand for the technology becomes less price-sensitive.
This paper combines recently digitized individual land patent data with remotely sensed satellite data to test whether long-run economic outcomes dier on lands originally settled under the Homestead Act of 1862 compared to land sold for cash. We nd evidence of significantly lower economic activity on homesteaded parcels that is reflected in county-level differences in income per across counties with varying degrees of homesteading. The results challenge two fundamental ideas in economics: that sunk costs are immaterial and that the initial distribution of property rights does not affect efficiency if transaction costs are sufficiently low. Whereas previous work has emphasized the relatively low transaction costs of land transactions within the Public Land Survey System, homesteading has had a lasting effect on both parcel sizes and incomes.
Abstract This paper combines the property rights approach of Barzel with notions from renewable resources and evolutionary economics to examine the domestication of wild animals. Wild animals are governed by weak property rights to stocks and individuals while domesticated animals are governed by private ownership of stocks and individuals. The complex evolutionary process of domestication can be viewed as a conversion of wild populations into private property as well as a transition from natural selection to economic selection controlled by owners of populations and individuals. In our framework domestication is not the explicit goal of any economic agent, but it rather emerges as the long run outcome of an innovation in hunting strategies in a hunter-gatherer society. Our formal model also suggests that the domestication process moves slowly at first but then proceeds rapidly, aligned with the archeological evidence on domestication events. Keywords: Domestication, property rights, renewable resources, evolutionary economics. JEL Classification codes: O130, Q1, Q2
To what extent does common property management of common pool resources (CPRs) yield spillover effects in other spheres of behavior, influencing individual behavior beyond the realm of natural resource management? Existing research suggests that communities that participate in community management schemes of CPRs can successfully manage a resource for the long term (Ostrom 1990, Agrawal and Chhatre 2006) and reduce conflict over the use of a CPR through the specification of clear rules for its management, and monitoring and enforcement of these rules (Ostrom 1990). However, little research has been done to evaluate the potential of positive externalities of these forms of local cooperation - existing literature says nothing about reducing conflict in other domains or adjacent systems. In this paper I explore the potential for spillover effects of common property rights regimes at the community level. Using a “games theory” framework (Bednar and Page 2007), I develop a theory and provide preliminary evidence to adjudicate between four competing hypotheses. I rely on preliminary evidence from a survey in Casamance, a separatist region in southern Senegal, where the creation of common property management of forests has been implemented as an explicit peacebuilding strategy.
A growing body of research has been investigating the role of management practices and managerial behaviour in conventional private firms and public sector organizations. However, little is known about managers’ behavioural profile in noninvestor-owned firms. This paper aims to fill this gap by providing a comprehensive behavioural characterization of managers employed in cooperatives. We gathered incentive-compatible measures of risk preferences, time preferences, reciprocity, altruism, and trust from 196 Uruguayan managers (half of them employed in worker cooperatives) and 92 first-year undergraduate students. To do this, we conducted a high-stakes lab-in-the-field experiment in which participants played a series of online experimental games and made incentivised decisions. The average payoff in the experiment was approximately 2.5 times higher than the average local managerial wage in the private sector. Our key findings are that (1) the fraction of risk loving subjects is lower among co-op managers compared to conventional managers, and (2) co-op managers appear to be more altruistic than their conventional counterparts. Interestingly, we do not observe significant differences between the two groups across other preference domains, such as impatience, trust, and reciprocity.
We study the effects of a pilot project that changed the saving incentive mechanisms set up by the Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa. The program aimed at introducing a stimulus to save in the form of the possession of “Goal Card” whereby clients owning this tool were asked to identify a saving goal and to commit to a regular saving amount. The experiment had quasi-natural approach, as it has been implemented by SEF in selected locations starting from May 2015. Diff-in-diff estimates show an improvement in the savings performance of the SEF customers treated with the program, compared to the counterfactual. Besides the evaluation of the program’s main effects, we investigate the clients’ understanding of the pilot and their attitude towards saving, as well as the quality of the pilot’s administration and its operational challenges, through the administration and analysis of surveys conducted on both the treated and control groups of clients.
We study a model in which corporate social responsibility (CSR) arises endogenously in response to imperfect regulatory oversight. In our model, a firm, a regulator, and workers interact. The firm generates profits but creates negative spillovers that can be attenuated through regulation. A regulator who cannot perfectly monitor firm compliance may have to set inefficiently loose regulation in order to ensure firm compliance. The firm may then hire a socially responsible worker who enjoys over-complying with regulation and taking actions to ameliorate the negative spillovers; the firm then benefits by extracting rents created by allowing this worker to engage in CSR. The key prediction of our model is that a reduction in regulatory oversight leads to an increase in CSR. We test the model in two ways. Using UK data we find that firms on average had lower CSR ratings after the introduction of mandatory greenhouse gas emissions disclosures compared to firms from the other 15 European countries which did not have a mandatory disclosure policy in place. Using US data, we find that industries most hit by outsourcing and globalization are those that increase their CSR scores the most. Both sets of results support the predictions of the model.
A long-standing puzzle is how overconfidence can persist in settings characterized by repeated feedback. This paper studies managers who participate repeatedly in a high-powered tournament incentive system, learning relative performance each time. Using reduced form and structural methods we find that: (i) managers make overconfident predictions about future performance; (ii) managers have overly-positive memories of past performance; (iii) the two phenomena are linked at an individual level. Our results are consistent with models of moti- vated beliefs in which individuals preserve unrealistic expectations by distorting memories.
Economic, and in particular trade sanctions are frequently used to punish non-compliant behavior in international politics. However, not enough is known on how these sanctions affect public opinion and popular preferences. Do people blame their government for the suffering inflicted by sanctions, or they rally ‘round the flag in defiance of foreign attempts to influence actions of their governments? In addition, worsening economic opportunities at home are likely to cause labor migration abroad, thus exposing migrants to foreign institutions, which might affect their positions on domestic political issues. Research of this problem is additionally challenged by the fact that sanctions are typically imposed on autocracies, which might manipulate public opinion. In this paper, I study a case of Russian-imposed trade sanctions on a democratic post-Soviet country. In 2006, Russia banned import of wines from Moldova, which has been widely perceived as an attempt to punish the Moldovan government for its increasingly pro-European course. Russia was the single largest consumer of Moldovan wines, amounting to 75 percent of export in 2005. Combining data from 2004 and 2014 population censuses, 1998-2010 elections results across 848 communes, and the pre-2006 spatial distribution of vineyards across Moldova, I show that, after the embargo, the prevalence of vineyards in a district is associated with the increase in share of residents choosing Romanian rather than Moldovan ethnic identity, a sign of pro-Western political and cultural orientation, and with the decrease in the vote share of the Party of Communists, the major pro-Russian political force in Moldova at the moment. The effect likely operated through the increased labor and educational migration to the Western countries. Therefore, the theories of “rally ‘round the flag” and the diffusion of democracy through international migration seem to explain the reaction of Moldovans to the Russian embargo.
Why does private business support the authoritarian rule? Most of the discussion in the literature concentrates upon the economic benefits entrepreneurs can extract from alliance with the nondemocratic states, including preferential access to rents and protection from competition. Yet it is possible that owners and managers of private companies - similarly to the general population - embrace the policies of authoritarian states because they share the main premises of the dominant ideology. "Patriotic" business can back the authoritarian government even if it does not extract direct benefits from it; at the same time, it is also possible that ideological loyalty and access to rents mutually reinforce each other as factors increasing the support of the regime. This paper uses the results of a list experiment conducted as part of a large survey of about 1,800 Russian manufacturing companies carried out in autumn 2018 in about 60 regions to single out the characteristics of this possible group of "ideologically loyal" companies. The list experiment intended to estimate the extent to which individual companies share the belief that the accession of Crimea into the Russian Federation was a major positive factor in the recent Russian development. Overall, we find a consistent pattern of features of the companies embracing the "Crimean consensus" in terms of the industry, location and ownership structure.
This paper explores the political economy of media harassment in Russia. We use a unique monthly dataset on the incidents of media harassment in Russian cities between 2004 and 2017 to establish real political cycles driven by local elections. We find that harassment incidents are 54% more likely to occur during the two months before a local election - a period that coincides with the official period of the electoral campaign. The effect differs with respect to the type of local election: more important elections produce bigger cycles.
We study the politicians and voters of Sweden's Radical Right. The rise of the Sweden Democrats is descriptively linked to macroeconomic events that magnified job insecurity and stagnated disposable incomes in large segments of the labor market. Negatively impacted groups entered politics to build the Sweden Democrats, and voting for the party concentrated in localities suffering larger impacts. Survey data suggest that economic anxiety may have triggered radical-right mobilization by weakening social and institutional trust among those with anti-immigrant preferences. We characterize the Sweden Democrats as a citizen-candidate movement that channeled inexperienced citizens from negatively impacted groups into politics. The party's entry shifted political selection for soft and hard valence traits in a negative direction.
Growing evidence suggests that state-controlled media adopt various strategies to shape citizens' beliefs about its competence in dealing with the economy. But we do not know whether these efforts are effective in changing the attitudes of the citizens, and whose attitudes they affect the most and the least. We develop a model of information updating where citizens are uncertain about the credibility of the media source as well as the value of the policy defended on the state-controlled media. Following information from the media, citizens update simultaneously on the credibility of the media as well the value of the policy. The model allows us to identify citizens with prior profiles that make them the least and the most susceptible to state-controlled media. We then test the predictions of the model using a two-stage online experiment in Russia. In the first stage, we introduce treatments to manipulate priors about the media credibility and the value of the policy. In the second stage, we randomize exposure to news content from the state media voicing support for the recent pension reform in Russia.
Recent work has documented a dramatic effect of neighborhoods on various non-political outcomes, but the effect of local context on political behavior has not been rigorously established. We use panel data for twelve million voters in Mexico to study the effect of local context on individual voter turnout. We exploit variation in local context induced by citizens who move between the 2012 and 2015 national elections. We find that differences in average turnout between the origin and destination localities substantially influence a mover’s probability of turning out to vote subsequent to moving. We next try to adjudicate between mechanisms relating to selection, infrastructure, political party mobilization, and peer effects. Selection cannot easily account for the fact that a mover’s voting history influences average turnout behavior at the destination, nor for the robustness of the main result to restricting the analysis to citizens within a small geographical unit who move from one block to another. The results are also not due to distance to polling station, violence, and campaign spending. Our findings are strongly consistent with peer effects: movers adopt local norms over time, and these spill over to household members who did not move.
We develop an analytic narrative with focus on the recent entry of China into the foreign aid game in Africa, with particular emphasis on the interaction between China and Western donors. We first model a recipient country’s decision to accept aid from either just one, or two (competing), donors as a dynamic game where aid by the traditional donor, but not by the new donor, is characterised by political conditionality in the form of good governance reforms. The implications of the model are then applied to Ethiopia using both data and qualitative evidence for the post-Cold War era.
Economic growth needs a strong and well-functioning government. But a government too strong can dominate private firms, leading to a holdup problem that is especially severe in autocracies. This paper studies how to constrain officials in autocracies through personnel rules, with a special focus on rotation and performance evaluation. Through a game theoretic model, I show that rotation or performance evaluation alone actually makes holdup problems even worse. But it is exactly their combination that covers each other's weakness and solves holdup problems together. Frequently rotated and carefully evaluated, officials also develop few entrenched interests in existing firms. This helps avoid crony capitalism and encourages Schumpeterian "creative destruction", solving another key problem with government-assisted development. Thus, rotation and performance rewards resolve the acute tradeoff between commitment and flexibility, a feature rarely satisfied by other commitment devices. Firm-level panel data from China are consistent with the key predictions of the model.
Although some dictators construct coup-proofed and personally loyal militaries, others favor professional militaries that more efficiently repress outsider threats. Existing research analyzes the purportedly ubiquitous “loyalty-efficiency” tradeoff that dictators face and the “guardianship dilemma” that strong outsider threats create. This paper shows these two tradeoffs are intimately related by studying the orientation and strength of outsider threats. In the formal model, a dictator chooses between a personalist and professional military. The military can repress to defend the dictator, stage a coup, or transition to outsider rule. Non-revolutionary threats do not generate a loyalty-efficiency tradeoff. Personalist militaries’ lower reservation value under outsider rule yields considerably stronger incentives than professional militaries to repress non-revolutionary threats—and, consequently, higher equilibrium repressive efficiency. The dictator’s strict preference for the personalist military also eliminates the guardianship dilemma. However, revolutionary threats trigger both tradeoffs. A strong, revolutionary threat encourages choosing a professional military, raising coup likelihood.
This paper empirically examines the economic influence activities (EIA) of firms. We argue that firms invest in jobs and establishments in congressional committee member districts that have oversight and influence over their businesses and industries. This investment increases as the legislator increases in power in Congress. However, as the legislator exits the committee, this investment slows. Firms do not exit their investments, but cease to continue investment in the district. Our theory makes three predictions. First, EIA by firms will be higher in congressional districts where the legislators have substantial political influence over the firm, relative to congressional districts in where legislators have little influence over the firm. Second, EIA will increase with the legislators’ power on the focal committee. Third, when a legislator exits the committee, EIA will diminish. We test these predictions by analyzing the Trinet biennial census of establishments, mapped into the congressional committee structure of the U.S. Congress. With these datasets, we are able to track the investment and employment of firms in each industry in each congressional district over time. Using fixed effects models, we show that the predictions of the theory are largely supported in the data. We explore causality by using exogenous exits by politicians by death and scandals to further complement our core analysis.
Our paper investigates how firms motivate their agents in the absence of explicit incentives, using the US lobbying industry as a case in point. We develop a simple principal-agent model in which a lobbyist and a client interact repeatedly. Consistent with US law, we assume the client cannot offer a formal incentive contract that explicitly links the lobbyist’s pay to measures of its success. However, the client observes the advocacy effort exerted by the lobbyist and hence can motivate him informally via implicit incentives. We show that the stronger the lobbyist’s political connections relevant to alternative clients, the lower the informal incentive the focal client can credibly commit to pay and hence the lobbyist’s effort. We test the theoretical predictions integrating data from the Foreign Agent Registration Act from 1999 to 2017 with data on lobbyists’ political connections in congressional committees.
This study presents a model in which interest groups compete for partially exclusive rents and the number of winners is stochastic. Partial exclusivity can explain the low empirical estimates of rent dissipation that create the Tullock paradox. However, partial exclusivity also increases aggregate effort and social waste. This study includes an empirical analysis of U.S. state-level lobbying expenditures, which reveals another puzzle regarding the constant relationship between aggregate expenditures and the number of spenders. In contrast to the existing rent-seeking contest models, this outcome is consistent with partially exclusive rents when the contest is designed by a rent-seeking maximising policymaker.
We offer a novel theory of mis-allocation within firms (rather than between firms) due to manager‘s empire building. We introduce an internal capital market in which managers of multi-product firms compete for funds weithin their firms in a two factor model of multi-product firms with monopolistic competition. Our theory explains why exporters suffer from a lower conglomerate discount than domestic firms (a novel fact that we establish). We show that more open markets impose discipline on internal competition for capital weithin firms, thus improving the efficiency of internal capital markets. Calibrating the model to US data shows that a 35% reduction in trade costs reduces, on average, the excessive financing in the best divisions of multi-product firms from 40% to 6%.
Academics and policy makers are increasingly advocating school autonomy as a way to improve student achievement. At the same time, however, many countries are experiencing a counterbalancing trend: the emergence of ‘chains’ that bind schools together into institutionalized structures with varying degrees of centralization. Despite their prominence, no evidence exists on the determinants and effects of differences in the organizational set-up of school chains. Our work aims to fill this gap. We use the insights of the incomplete contracts literature to study the internal organization of school chains seen as firms. We match detailed survey information on decentralization decisions of procurement activities regarding 410 chains and 2,000 schools in England to student, school and market-level administrative records. We find that chains with a larger share of schools whose leadership background is aligned with the chain board’s expertise, younger chains, and chains that are closer to the market value-added (‘productivity’) frontier decentralize more. We find instead no association between the value-added heterogeneity of the markets in which the chains operate and their decision to delegate. Future work will investigate the link between the structure of school chains and their students’ performance.
Much of the research in African manufacturing focuses on small and micro enterprises. In this paper, we focus on medium and large manufacturing firms and present a series of new stylized facts on patterns of ownership, management practices, and organizational structures of these firms. In particular, we contrast the patterns of adoption in Africa versus other developing regions in Latin America and Asia. We document the ability of multinational corporations (MNEs) in these countries to adopt significantly better practices relative to the domestic firms, and explore the determinants of divergent spillovers from MNEs to domestic firms across these areas. We use new data from the Ownership Survey, the World Management Survey and the World Bank’s enterprise survey to exploit variation in firm location and age as determinants of organizational choices. As the largest share of firms are still controlled by their founders, we document the most salient founder characteristics as well as the differences between founder-run firms and other types of ownership structures. We characterize the patterns we present in the stylized facts by placing them in the context of industrial development over decades in Africa.
The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 131 firms, we find evidence consistent with the “Peter Principle,” which predicts that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch.
This paper studies career spillovers across workers, which arise in firms with limited promotion opportunities. We exploit a 2011 Italian pension reform that unexpectedly tightened eligibility criteria for the public pension, leading to sudden, substantial, and heterogeneous retirement delays for workers. We use administrative data on Italian private-sector workers in small to medium firms and leverage cross-firm variation to isolate the effect of retirement delays among soon-to-retire workers on the wage growth and promotions of their colleagues. We find evidence of spillover patterns consistent with older workers blocking the careers of their younger colleagues in firms with limited opportunities.
We study whether two aspects of the gift delivery matter for workers' effort response to above-market wage increases: the employer-employee acquaintance and the upfront communication of the employer's first-order belief about the effort response to the gift. Randomizing acquaintance and expectation communication in an otherwise standard gift exchange field experiment, we show that acquaintance damages the gift exchange, while combining it with a clear statement from the principal about her expectation on reciprocal effort, amplifies it. The result that if gifts are delivered with a velvet glove (i.e., when the employer-employee have met) must be at the expense of using an iron fist (asking for effort in return) highlights that reciprocity is sensitive to subtle delivery details and highlights that a crucial aspect of compensation is its implementation.
Empowered by information technologies, online platforms enable service providers to offer customized services that Chinese consumers have increasingly desired. Despite its tremendous value-creation potential, offering customized services encourages greater opportunism from the service providers. While reputation-based mechanisms have been proposed to foster trust, their effectiveness is limited by the disadvantageous initial state of the Chinese industries. To address this problem, we propose a novel platform design where, from its inception, the platform deliberately limits the number of service providers below a certain threshold, even if they are homogenous. Without imposing this threshold, the competition among the service providers may lead to a unique equilibrium under which all the service providers shirk. In contrast, by imposing the threshold, the platform may induce a welfare-enhancing equilibrium where (i) the service providers on the platform enjoy higher capacity utilization than those outside and are motivated to exert effort by future concerns, and (ii) customers prefer service providers on the platform and are willing to pay a premium. We evaluate the implications of our proposed approach on platform profitability, specifically by comparing different payment schemes. We generalize the model regarding imperfect monitoring signals and the entry and exit of service providers. Our work sheds new light on how platform design can help reduce market frictions in economic exchanges and potentially influence the evolution of industries.
Multisided platforms serve two or more sets of users who are connected via an indirect network effect. Beyond pricing, the extent and scope of the interactions between the platform’s users depend on various other factors including product quality, exclusivity and users’ heterogeneous preferences. Platforms, thus, have to carefully balance the needs of its users through the enactment of governance strategies. Selective promotion of a subset of the platform’s users through certification is often part of this “market orchestration” process. We study how certification of complementors affects the bundle of products offered by those complementors as well as how it affects the platform’s demand-side users. We use a unique dataset of Kiva’s microfinance platform to take advantage of a quasi-exogenous shock: Kiva’s unexpected introduction of the Social Performance badging program in late 2011. We show that Kiva’s certification leads badged microfinance institutions to reorient their loan portfolio composition and that the extent of portfolio reorientation varies across microfinance institutions, depending on demand and supply-side factors. We further show that certified microfinance institutions who reorient their loan portfolios along the dimension of the certification gain greater demand-side benefits than certified microfinance institutions who do not reorient their loan portfolios.
Industry actors frequently seek to engage in self-regulation to enforce standards among industry participants. Yet such efforts at private regulation typically suffer from classic problems related to free riding and the tragedy of the commons. This paper proposes that technological platforms can serve a private-regulatory function when they 1) provide tools for monitoring or reporting malfeasance and 2) credibly restrict access to the platform, thus sanctioning malfeasants. The paper illustrates these points with a case study of Safe-Boda, an Uber-like motorcycle taxi firm in Uganda. Motorcycle taxis, known as boda-bodas, are notoriously dangerous for drivers, passengers, and pedestrians alike. Efforts at state regulation and industry self-regulation both failed in the mid-2000s and early 2010s. In contrast, the introduction of a ride-hailing technology platform that met both of the above conditions has succeeded at reducing unsafe driving, and also at matching riders with lower tolerance for unsafe rides with drivers who engage in safer practices.
Business elites are connected by interpersonal ties to form a network, and more-central positions in a network are commonly considered to be more desirable. But what determines the centrality of business elites among their peers? We argue that in China, because politics critically shape business, a businessperson's centrality in the network of business elites (i.e., business network) is to a significant extent determined by his/her centrality in the network of politicians (i.e., political network). Using data on all top managers and board of directors of publicly listed firms and all politicians at the prefecture level and above in China in the period of 2000-2017, we examine how political conditions shape the position occupied by each business elite in the business network.
How do corruption and the state apparatus interact, and how are they connected to the political and economic dimensions of state capacity? Motivated by historians' analysis of powerful empires, we build a model that emphasizes the corrosive effect of corruption on state power. Under general assumptions about fat-tailed risk, we show that the optimal response for the head of the state apparatus is an endogenous lexicographic rule whereby local corruption is maintained at such a level that no erosion of state power is tolerated. We further investigate the conditions under which deviation from the lexicographic rule, over-tolerance of corruption, and erosion of state power become possible, showing a non-monotonic relationship in the correlation between state power and corruption across different levels of fiscal capacity. Our results are consistent with empirical patterns in recent cross-country panel-data.
Whether capital is efficiently allocated between urban and rural China can have a profound implication for both production efficiency and distributive equity. However, there is little empirical evidence and analysis of rural-urban capital misallocation in China. This paper attempts to fill this gap. We find that on average, marginal product of capital tends to be lower in urban areas, indicating that rural areas face a shortage of capital. Further, we find that rural-urban MPK differences are largely due to MPK differentials across state-owned enterprises in rural and urban areas. This suggests that state policies, as opposed borrowing constraint by private enterprises, are the likely factors for under-investment of capital in rural areas. We also find that development of local financial markets narrows the urban-rural gap while direct control of the local economy expands it. Moreover, the urban-rural gap is widely existed across prefectures with different status. Finally, the urban-rural gap in capital access explains a large fraction of the observed urban-rural gap in output per worker. We believe that the reported urban-rural gap in capital access provides a case evidence of various urban bias in the country.
Accumulating evidence suggests that pay-for-performance (P4P) contracts can elicit greater effort from incumbent civil servants, but less is known about how these contracts affect the composition of the public sector workforce. We provide the first experimental evidence of the impact of P4P on both the compositional and effort margins. In partnership with the Government of Rwanda, we implemented a `pay-for-percentile' scheme (Barlevy and Neal 2012) in a novel two-tier experimental design. In the first tier, we randomly assigned teacher labor markets to either P4P or equivalent fixed-wage contracts. In the second tier, we implemented a `surprise', school-level re-randomization, allowing us to separately identify the compositional effects of advertised P4P contracts and the effort effects of experienced P4P contracts. Our pre-analysis plan sets out a theoretical framework that helps to define a set of hypotheses, and conducts simulations on blinded data to develop high-powered tests. We find that P4P contracts did change the composition of the teaching workforce, drawing in individuals who were more money-oriented, as measured by a framed Dictator Game. But these recruits were not less effective teachers---if anything the reverse. On the effort margin, we observe substantial and statistically significant gains in teacher value added, mirrored in positive effects on teacher presence and observed pedagogy in the classroom. In Year 2, we estimate the total effect of P4P, across compositional and effort margins, to be 0.21 standard deviations of pupil learning. One quarter of this impact can be attributed to selection at the recruitment stage, with the remaining three-quarters arising from increased effort.
We present results from a large-scale experimental evaluation of an ambitious attempt to improve school governance at scale in India (implemented in ~1900 schools and randomized over ~5800 schools). The intervention consisted of several global best practices in school governance and included three main components: comprehensive school assessments by external school inspectors leading to customized school improvement plans, regular follow ups on progress with ongoing monitoring and support and leveraging ICT tools to make both assessments and progress visible throughout the education system. We report four main findings. First, the assessments were able to meaningfully evaluate school quality with scores being predictive of future student value-added and teacher absence. Second, though initial assessments (overseen by external consultants) were implemented well, subsequent monitoring by government officials was not affected by the intervention. Third, we find no impact on teacher absence, teacher effort in classrooms, student engagement or the engagement of School Management Committees. Finally, consistent with this, the intervention had no impact on student learning outcomes. Our results provide direct evidence of the challenge of improving service delivery at scale in developing countries and show how well-designed plans and programs fail due to poor implementation and state capacity.
We study the relationship between management practices and bureaucratic output, using an original survey of the universe of Ghanaian civil servants across 45 organizations and administrative data on over 3600 tasks and projects they undertake. We first demonstrate that there is a large range of variation across government organizations, both in management quality and output delivery. We then show that output exhibits a positive partial correlation with autonomy/discretion-related practices, but a negative partial correlation with incentives/monitoring-related practices. We investigate the external validity of this relationship in a separate sample of bureaucrats and outputs from Nigeria. While these results contrast with the frequent policy emphasis on introducing top-down monitoring and incentives as a means to elicit agent effort, we show that the findings are consistent with theories of bureaucratic coordination, intrinsic motivation, influence activities, and output clarity. We discuss implications for theory, empirical methodology, and policy.
Why do religious politics thrive in some societies but not others? This paper explores the institutional foundations of this process in Indonesia, the world’s largest Muslim democracy. We show that a major Islamic institution, the waqf, fostered the entrenchment of political Islam at a critical historical juncture. In the early 1960s, rural elites transferred large amounts of land into waqf—a type of inalienable charitable trust—to avoid expropriation by the government as part of a major land reform effort. Although the land reform was later undone, the waqf properties remained. We show that greater intensity of the planned reform led to more prevalent waqf land and Islamic institutions endowed as such, including religious schools, which are strongholds of the Islamist movement. We identify lasting effects of the reform on electoral support for Islamist parties, preferences for religious candidates, and the adoption of Islamic legal regulations (sharia). Overall, the land reform contributed to the resilience and eventual rise of political Islam by helping to spread religious institutions, thereby solidifying the alliance between local elites and Islamist groups. These findings shed new light on how religious institutions may shape politics in modern democracies.
A ruler who does not identify with a social group, whether on religious, ethnic, cultural or socioeconomic grounds, is confronted with a trade-off between taking advantage of the out-group population's eagerness to maintain its identity and inducing it to "comply" (conversion, quit, exodus or any other way of accommodating the ruler's own identity). This paper first analyzes the ruler's optimal mix of discriminatory and non-discriminatory taxation, both in a static and an evolving environment. The paper then uses novel data sources to test the theory in the context of Egypt’s conversion to Islam between 641 and 1200. The evidence is broadly consistent with the theoretical predictions.
Using China's land market data during 2012-2013, I document evidence of corruption and its effects on politicians and politically connected firms. I find that firms that have locality-specific political ties paid on average 30% less than firms without such ties. Detailed investigations show that firms' political patrons manage to reduce prices by lowering land reserve prices and restricting competitors during the land auction period. Meanwhile, I find that political patrons' level of corruption has an inverted U-shaped relationship with their promotion incentive, and has a U-shaped relationship with their tenure at current positions. Finally, I conduct an event study to show that politically connected firms experienced an overall 18% abnormal negative returns when their political patrons were disciplined during the current anti-corruption campaign.
The paper explores the extent of family relations between businesses and government in the Philippines and provides the quantitative evidence for the rich anecdotal literature on Philippine politicians and their firms. The paper makes use of a unique dataset which combines financial data and ownership information of Philippine corporations with the names of incumbent government officials, and is first at systematically analyzing such data for the country. The study finds that around 20 percent of Philippine corporations are connected to incumbent politicians. The study employs Mahalanobis matching, using a Kernel method, to show that politically connected firms benefit from connections by gaining larger revenues, higher profitability, and acquiring more debt. Specifically, politically connected firms whose owners start from business first and enter politics later on were found to have higher revenues and profitability, meanwhile, connected firms whose owners started in politics first and established businesses later on acquired higher debt. Further, firms whose owners are connected to the losing candidate exhibited lower debt.
In this paper we pose the question to what extent economic and political elites persisted after the fall of the Soviet Union. In the literature arguments have been made both in favour of continuity of elites and in favour of their replacement. The argument for continuity has been based on the importance of old “nomenklatura” social capital for economic success during the early nineties, when the assets of Russia were privatised often to the benefit of the best connected economic agents and specific groups could get access to various types of special treatment by the government. But there have also been strong arguments in support of more than normal elite replacement, that would be driven by the massive socio-economic shock of transition and the ensuing "Putin shock", where many of the elites were again replaced after Putin's ascent to power in 2000. We study this question using very large datasets covering tens of millions of individuals. Using surname analysis methods inspired by Gregory Clark’s work and employing innovative measures of eliteness, we find that the Soviet elites of 40-ies strongly persisted until the late eighties and that both of these cohorts of elites survived relatively well not only the shock of transition, but also the Putin shock. The old Soviet elites, that is, have managed to reproduce themselves surprisingly well throughout transition.
This paper analyzes the relationship between CEO quality and firm productivity in the private sector using top-manager/CEO job transitions. Using a matched employer-employee data set, I attempt to disentangle the role of the CEO type (identity) from that of the firm in revenue productivity and evaluate the existence and relevance of match complementarities between CEO and firm types. I present a proxy measure of CEO quality that takes advantage of differential patterns of CEO mobility throughout their careers to circumvent endogenous CEO job mobility. I find that a one-standard deviation increase in CEO quality results in 5% increase in firm production. Higher quality CEOs are more likely to hold a higher education degree, have a larger experience as a manager, invest in innovation and less likely to work in a family firm. More strikingly, results indicate that CEO-firm complementarities represent about half of the CEO’s impact in firm revenue productivity. The issue of CEO impact is of significant practical importance to firms and policy makers alike, as it can partly explain the rise in wage inequality.
We study the association between job applicants’ personality characteristics and their match to the job. Our unique data come from around 200 of new hires in a major personnel services firm, and consist of “big five” personality characteristics, risk attitudes and intertemporal choice preferences matched with their personnel records. We find a robust link between the likelihood of staying on the job and the personality trait of conscientiousness (self-discipline and dutifulness). The correlations between turnover and other personality traits are less robust to specification. Our study contributes to the literature on the importance of personality traits for performance on the job by (i) validating its findings in a setting that is robust to applicants’ “gaming” the results to improve their chances; (ii) using very detailed data; and (iii) applying a broad battery of methods, including machine learning techniques.
Prior economic research is very critical about family CEOs and family management. Nepotism, altruism, lower managerial abilities, and a small pool of qualified family candidates are cited as reasons that speak against family management. Still, the empirical reality is different. A surprisingly large share of firms is run by family managers. Our study provides a rational economic explanation for this paradox, linked to the multitasking problem in managing family firms. We compare the performance of family and non-family managers in a moral-hazard model with imperfect performance measures, where managerial tasks are related to the economic and non-economic goals of the business-owning family. While incentive pay is more effective for nonfamily managers, the associated effort distortion towards economic outcomes is less pronounced for family managers. When economic and non-economic tasks are strong substitutes, the family hires a non-family manager at the expense of its non-economic goals. However, the more complementary the tasks, the more aligned the performance measure with the family's goals, and the less severe the moral-hazard conflict, the more likely a family manager is optimal. We find that family managers can be preferred even if they have lower ability than non-family managers on average. Our study contributes to the literature about family management and agency costs in family firms and has practical implications for family businesses deciding between hiring managers in or outside the family.
Confidence in institutions does vary among firms within and across countries. Impersonal relations on country level and ownership on firm level are important determinants of this heterogeneity. Based on more than 3,000 firms from up to 25 countries, we unbundle the effect of impersonal relations on confidence in property rights and contractual institutions. Our main finding is that with weak impersonal relations, foreign firms have significantly less confidence in institutions compared to private domestic firms. While generalized trust – the informal dimension of impersonal relations - is the dominant channel for differential property rights institutions, judicial independence - the formal dimension - turns out to have the same role for contractual institutions. The differences become insignificant at higher levels of impersonal relations. We provide several robustness checks addressing endogeneity, reporting bias and sample selection.
This paper examines the contribution of administrative and procedural transaction costs to economic growth under common legal system. We show that administrative and procedural costs vary quite a lot even within the institutional environment sharing the common legal system. States with low-cost business registration, low-cost access to property rights and greater judicial efficiency tend to have consistently higher growth. The established effects are robust to alternative model specifications, heterogeneity bias, and to a variety of control variables that might confound the effects of transaction costs on growth. Such differences in transaction costs are far from being trivial as we show that these within-system differences might be instrumental in influencing economic growth. Lower transaction costs induce growth by increasing investment rate, lowering unemployment rate, encouraging labor supply and improving TFP. In the counterfactual scenario, the transition from high-cost to low-cost regime is associated with substantial growth and development gains over time. By exploiting the variation in historical presence of US troops in 1848, disease environment, ethnic fractionalization and historical urbanization, we show that the negative effect of rising transaction costs on growth and development appears to be causal.
Little is known about how changes in property rights security impacts firm capital structure decisions. We examine this empirically by exploiting a natural experiment, the enactment of China’s Property Rights Law in 2007 (the Law). Using a large dataset of China’s non-listed firms, we document a significant decrease in leverage after the Law’s passage. This finding is consistent with the “reinvestment hypothesis” which stipulates that as property rights protection strengthens, firms are willing to reinvest more of their profits, thus leading to less use of external debts (Johnson, McMillan and Woodruff, American Economic Review, 2002). In subsample analyses, we find that financially constrained firms experience an increase in leverage relative to unconstrained ones following the Law’s enactment, as predicted by financial constraints theoretical models. Overall, our study finds that the Law has a significant impact on firm leverage decisions and that the Law is particularly important to financially constrained firms.
When and why are some skillsets more valuable than others? This paper addresses the role of skillsets as bundles of coordinative capabilities in the US civil service. Building on recent advances in personnel economics and studies of knowledge in team performance, this paper theorizes the role of skillsets in employment outcomes by stressing the value to employers of employees best suited to coordination roles in their organizations. A novel method for skillset identification is introduced, leveraging the availability of job documentation and natural language processing software. After identifying employees’ skillsets and skill-based linkages among coworkers, panel regression models of 2.7 million person-year records, covering a subset of federal employees between 1979 and 2014, indicate that civil servants best positioned to coordinate workplace tasks are more highly compensated. Furthermore, this effect is found to depend in part on the complexity of the organization in which civil servants work. As organizational complexity (i.e., need for coordinative capabilities) increases, so too does the magnitude of later salary growth. Limitations of the analysis are discussed, as well as future directions for research on the nature of work, employment, mobility, and organizational performance.
We investigate the impact of computerization of white collar jobs on jobs, wages, and employment. Using online job postings from 2007 and 2010--2016 for office and administrative support (OAS) jobs, we show that when firms adopt new software at the job-title-level, they increase the skills required of job applicants. Further, firms change the task content of such jobs, broadening them to include tasks associated with higher-skill office functions. We then aggregate these patterns to the local labor market level, instrumenting for local technology adoption with national measures. We find a one standard deviation increase in OAS technology usage reduces employment in OAS occupations by about one percentage point and increases wages for college graduates in OAS jobs by over 3 percent. We find negative wage spillovers, with wages falling for both non-college and college graduates. These losses are in part driven by high-skill office occupations. These results are consistent with technological adoption inducing a realignment in task assignment across occupations, leading office support occupations to become higher-skill and less at risk from further automation. In addition, we find total employment increases with computerization, despite the direct job losses in OAS employment.
Has the increase in female medical researchers led to more medical advances for women? In this paper, we investigate if the gender of inventors shapes their types of inventions. Using data on the universe of US biomedical patents, we find that patents with women inventors are significantly more likely to focus on female diseases and conditions. Consistent with the idea of women researchers choosing to innovate for women, we find stronger effects when the lead inventor on the patent is a woman. Women-led research teams are 26 percent more likely to focus on female health outcomes. This link between the gender focus of the scientist and the type of invention, in combination with the rise of women inventors, appears to have influenced the direction of innovation over the last four decades. Our findings suggest that the demography of inventors matters not just for who invents but also for what is invented.
The duration to apply for participation in auctions affects entry costs through search costs and the time to prepare applications. The role and the determinants of the application period is studied using Russian public procurement data on gasoline in the period 2011-2013. By relying on explicit rules on the determination of the application period, we find that longer periods increase competition and eventually lead to price reductions. Moreover, we show that public buyers avoid long application periods. They shorten the period if they need gasoline immediately but we further argue that buyers limit competition by increasing entry costs to facilitate favoritism. Finally, we provide evidence of collusion sustaining favoritism.
This paper presents a survey-based methodological approach to detect potential opportunism by counterparts who are linked with agents through contractual relations. The methodology proposes asking counterparts about attitudes toward some behaviors of agents, which are undesirable from the principal and benevolent counterpart perspective. The approach identifies the potential opportunism of counterparts based on the intensity with which they justify such behavior and provide unrealistic assessments of commonly known problems. The approach is especially important in a situation where the rules are inconsistent with reality and the principal can no longer disentangle the benevolent and opportunistic behavior of the agent. The authors test this approach by conducting a survey of procurers and suppliers of public procurement contracts in Russia.
Connections between business and bureaucrats are generally seen in the literature as a source of rents and a barrier to economic development. But practically all cases of successful catching up development realized in the 20th century involved, at their initial stages, preferences to entrepreneurs who had connections with the ruling political elite. In this paper we follow the logic of the “limited access orders” framework proposed by North, Wallis and Weingast (2009, 2013), arguing that connections between business and state officials are inevitable at early development stages of a market economy – since without sources of rents elites in LAOs would not be able to restrain violence and maintain political stability. The main question is about applying these rents: are they being squandered on the elite’s personal consumption or used for productive purposes? To determine how important are connections to bureaucrats for Russian entrepreneurs we used list experiment design within large-scale survey conducted in 2017 among 21,000 Russian firms. We found that 29% of entrepreneurs consider personal connections with regional and municipal bureaucrats as an important factor of their business development. Firms that made fixed capital investments in 2016 consider personal connections to bureaucrats to be more important: 37% say so among them vs. 27% among non-investing firms. An additional test revealed that connections with bureaucrats are significantly less important for successful business operation in Russian regions within the top tier of the 2015 investment climate rating, i.e. those with a low level of administrative costs of doing business (around 18% in this subsample vs. 29% in the overall sample).
Leadership presents a puzzle for traditional economic theories of organizations. The theory of the firm recognizes advantages to centralizing authority through the facilitation of rule-based and delegated decision-making. However, the benefits of centralized authority do not address the specific contributions leaders make when they exercise their decision rights. Put differently, if effective leadership within a hierarchy is simply a function of institutionally defining and constraining a given leader’s authority, why does it matter which specific individual is at the top of the hierarchy? Nonetheless, the importance of leadership searches on the part of private and public organizations, as well as the compensation for these roles, indicates that specific individuals matter for downstream contingencies. We develop a property rights/transaction costs theory of leadership, and use the economic logic of agency and coordination costs to test the effect of changes in Deans of Law and Business Schools, NFL coaches and Brazilian soccer managers. We find an impact of leadership changes both within and between organizations.
This paper develops a simple economic model to examine how leadership styles in organizations depend on the prevailing wage-setting conditions for workers. In particular, we examine a leader who can - in addition to the use of monetary incentives - motivate a worker by adopting leadership styles that differ in their non-monetary consequences for the worker's well-being. Some leadership styles produce non-monetary benefits for workers (such as those involving the provision of praise to high-performing workers), other styles impose non-monetary costs (such as those involving social punishment for low performers). We show that leaders never use the latter type of leadership when the worker is hired in a competitive labor market. In contrast, in labor markets with non-competitive wage-setting (e.g., in the presence of trade union bargaining or minimum wage legislation) leaders sometimes do use the `unfriendly' style, and the more so the worse the worker's labor market prospects are. We show that this is socially inefficient. `Friendly' leadership styles are always adopted when they are socially efficient.
Leadership has been considered a promising tool to improve team performance in complex tasks, but leaders and leadership styles are chosen endogenously in many team work environments. To uncover the causal effect of such endogenous leadership choices, we conduct a field experiment with more than 280 teams (1250 individuals) performing a complex non-routine task. We randomly encourage teams to decide on a leader and find that teams in treatment are significantly more likely to finish the task. Leadership appears to influence team organization but does not reduce teams' willingness to "explore" original solutions.
Despite the prevalence of non-routine analytical team tasks in modern economies, little is known about how incentives influence performance in these tasks. In a field experiment with more than 3000 participants, we document a positive effect of bonus incentives on the probability of completion of such a task. Bonus incentives increase performance due to the reward rather than the reference point (performance threshold) they provide. The framing of bonuses (as gains or losses) plays a minor role. Incentives improve performance also in an additional sample of presumably less motivated workers. However, incentives reduce these workers' willingness to "explore" original solutions.
This paper studies the importance of clarity, communication and trust between members of an organization in driving organizational performance. Gibbons and Henderson (2010, 2012) argue that Clarity (that which allows for the mutual understanding of actions and expectations within an organization) is as important as credibility/trust (the belief that others will honor their promises within and organization) to sustain performance in the context of a repeated game with moral hazard. But these two dimensions have not been measured systematically to assess their individual and also their relative importance empirically to explain performance. I study this in the context of the product development section of a large bank that is structured a following the Agile model i.e. around self-managed teams, with few interdependencies among them. I ran 5 surveys to about 300 teams between October 2015 and February 2017 that capture the main drivers of sustained cooperating relationships within teams proposed by theorists. Exploiting within team variation over time, I show how these features correlate with team efficiency, employee engagement and the extent to which there is learning. I also show to what extent there is learning over time within teams. The importance of the measured features which are “soft” in nature and dependent on interaction highlights the difficulty in copying organizational practices across firms.
This project studies the consequences of an international political conflict for composition and performance of teams on GitHub, the world's largest open-source platform. I exploit the unexpected conflict between Russia and Ukraine following the annexation of Crimea in March 2014 and analyse the impact of this conflict on the online collaboration between Ukrainian and Russian programmers. Using microdata from GitHub, I show that the conflict exerted a strong negative effect on Ukrainian-Russian collaboration and provide evidence for the causal role of national identity. I then discuss potential channels, through which an identity shock could affect performance of online teams: first, by hindering communication within a diverse team and second, by changing the taste of some team members for projects initiated by a "hostile" social group.
Motivated by the contrasting experience following the two waves of decentralization in China, we develop a formal model of inter-governmental communication to study the impact of decentralization on economic performance under an authoritarian regime. Decentralization shifts the decision power of policy-making from the central government to the local. The local government has the information advantage, but it also has the loyalty concern, the political incentive to follow the policy prescriptions from the central. We show that the loyalty concern impacts the economic outcome of decentralization by distorting inter-governmental transmission of information as well as final policy-making. A strict adherence to the central could render decentralization welfare- reducing, causing low output and high volatility. We offer several theoretical extensions to highlight the underlying mechanisms and demonstrate the robustness of our results.
I study the allocation of decision rights in a two-dimensional cheap talk game with informational interdependence and imperfectly informed senders (agents). The Principal allocates decision rights among all players including herself, thus determining incentives for communication. Delegation is optimal when the expected informational gains outweigh the loss of control due to a biased decision. Because delegation breaks the interdependence between decisions, the informational gains may refer to the decision the Principal retains. This implies that negative informational externalities (Levy and Razin, 2007) can lead to Partial Delegation. I also analyse agents' incentives for information acquisition. An agent invests in a single piece of information when the expected utility gains from revealing it compensate its costs. Truthful communication is thus a necessary condition for information acquisition. But the information transmitted must also have substantial influence on beliefs –i.e. few other agents acquire (and reveal) the same information in equilibrium. As a consequence, the Principal strictly prefers centralization when the cost of information is sufficiently large. When an agent specializes he avoids the possibility of observing contradictory information, enhancing communication incentives. Finally, delegation implies that decision-makers will typically receive more information about the more relevant state, a situation I call ex-post specialization.
This paper contrasts the efficiency of two coordination mechanisms, decentralized coordination and authority, in resolving coordination problems in organizations. Under decentralized coordination, the agents (subordinates) responsible for different tasks are also responsible for acquiring and sharing information about their tasks and then executing a plan of action. In contrast, under authority, a principal (superior) processes all relevant information and then instructs the subordinates as to what actions to take, and the subordinates choose to follow these instructions without further evaluation. The analysis thus revisits the classic notion of authority as the ability of an individual to instruct others on what to do and to expect obedience, and formalizes it as an endogenous equilibrium information structure of a game. Both types of equilibria can co-exist, with the advantage of authority lying in the strategic management of information made available to the subordinates, which facilitates coordinated adaptation to opportunities without exposing the organization to excessive oportunism. Authority dominates decentralized coordination whenever the parties exhibit moderate patience and cost disadvantage of authority in processing information is not too large.
We advance the hypothesis that women are not less competitive than men once experimental games include factors that matter to women. We contend that when choosing how much effort to exert in highly rewarding but risky environments, cash prizes are not the only factor that motivates individuals to compete and allowing the winners to express some prosociality towards the losers has gendered consequence on individual competitiveness. An experiment conducted online confirms our hypothesis: adding an element of prosociality where top performers earn the right to control how to split the prize between winners and losers significantly increases female performance to levels indistinguishable from males, whose performance stays unchanged.
Flexible work arrangements are of increasing importance, but we still have little systematic evidence on the question whether these are primarily set by the employers or by the employees. We shed new light on this question by examining the effect of an expansionary universal childcare reform on mothers’ take up of work that includes non-ordinary work hours; that is the contract includes regularly shift work, evening and night work, Saturday and Sunday work. We find that mothers increase the take up of non-ordinary work arrangements, and this is a shortterm effect of the reform. The increase is entirely driven by mothers who work relatively long hours, more than 30 hours per week. The average response is more pronounced for women after maternity leave. We interpret these results as showing novel evidence supporting the hypothesis that the marginal take-up of non-ordinary hours is driven by labour supply factors.
I examine how matrilineal relative to patrilineal kinship systems affect spousal cooperation. In matrilineal kinship systems, lineage and inheritance are traced through women. The structure of matrilineal kinship systems implies that, relative to patrilineal kinship systems, women have greater support from their own kin groups, and husbands have less authority over their wives. I use experimental and physiological measures and a geographic regression discontinuity design along the matrilineal belt in Africa to test how kinship systems affect spousal cooperation. Men and women from matrilineal ethnic groups cooperate less with their spouses in a lab experiment. This is not the case when paired with a stranger of the opposite sex. I examine the implications of matrilineal kinship for the well-being of women and children. Children of matrilineal women are healthier and better educated, and matrilineal women experience less domestic violence. The results highlight how household outcomes are tied to broader social structures.
Despite the relevance of inclusive political institutions and strong property rights, we still lack an unified framework that identifies their origins and interaction. We study a model in which the elite can elicit the citizens' cooperation in investment by either granting a more inclusive political process, which allows them to select the tax rate and produce their preferred public good, and by punishing suspected shirking through the restriction of property rights. When the investment return is small, cooperation can only be attained under the more inclusive political process. When instead investment is sufficiently profitable, the elite does not need to empower the citizens and can substitute maximum taxation and \textit{de facto} property rights with partial redistribution and, possibly, no private rights. Yet, embracing the stick is optimal only when production is sufficiently transparent, and, thus, punishment effectively disciplines a shirking citizen. These predictions are consistent with the evolution of the geographic conditions shifting the expected return and opacity of the farming process, the inclusiveness of political institutions, the strength of property rights and the public good provision in a panel of the 44 major Mesopotamian polities spanning each half-century between 3050 and 1750 BCE. Crucially, our estimates are very similar when we control for proxies for trade potential, severity of external and internal conflicts and urbanization.
The long run consequences of colonial rule depended on the institutions introduced by the colonisers and the economic activities they promoted. This paper analyses the effects of opium production under British rule on current economic development in India. I employ a border discontinuity design which interacts fine-grained local variation in environmental suitability for poppy cultivation with administrative boundaries that demarcated opium-growing areas. I find that greater suitability for opium is associated with lower literacy and a lower rate of public good provision within opium-growing districts but has no effect in bordering areas where opium cultivation was prohibited. Placebo tests using suitability for other crops show no such discontinuity. Colonial administrative data allow me to test potential mechanisms for the persistent negative effect of opium production. Greater poppy cultivation is associated with less per capita public spending on health and education by the British administration, a lower number of schools, and a greater concentration of police officers. These results suggest that colonial officials in opium growing districts concentrated on administering and policing the extraction of monopsony rents, while investing less in the wider local economy.
What are the origins and consequences of different inheritance traditions of agricultural property? Our analysis is based on a municipal-level data set on agricultural inheritance practices in Baden-Württemberg in the early 1950s. We also theoretically model how equal partition, because it induced more part-time farming and created less migration pressure lead to industrialisation and structural change in rural areas. In a first step of our empirical analysis, we investigate the factors that determined the origin, persistence and change of different inheritance practices. We find that especially geographic factors like elevation or wine-growing but also deep historical factors like being in the Germanic settlement area or having access to Roman roads are important to understand the origins of inheritance practices. For the persistence of those, deep-rooted historical factors seem to be most important. We also find that inheritance traditions change due to economic incentives and cultural diffusion. Second, we employ a spatial RDD to empirically test whether this is true. Confirming our theory, we find equal partition areas to be better developed, and more industrialized in 1950 and still in the 2000s.
In this paper, we try to understand how firing of workers in an organization affect the productivity of the surviving co-workers. We take advantage of detailed individual-level production records from, and extensive fieldwork conducted at, a large Bangladeshi sweater factory before, during and after several episodes of labour unrests that eventually led the management to fire numerous workers (approximately 25% of the labour force in the relevant production floor). Exploiting across-worker variation in exposure to co-workers firing, we document a negative impact of firing on productivity of surviving workers. Additional evidence rules out a number of competing mechanisms such as subsequent targeted punishments from management, loss of productive peers, or attention diverted to help recently hired and inexperienced co-workers. We argue that the effects are likely driven by feeling of loss, or anger towards the management and by a less enjoyable workplace.
Recent work in organizational economics stresses the importance of clarity in relational contracts as a reason behind the persistent performance differences that we observe between seemingly similar enterprises. Even though the conditions necessary to establish cooperation through relational contracts are straightforward in theory, in practice establishing a relational contract poses a number of difficult challenges. Specifically, trading parties face the clarity problem: they need to establish mutual understanding about the content of the relational contract and they need to succeed in adapting this mutual understanding to new situations when the environment changes. We hypothesize that building the relational contract on general principles, rather than relying on specific but narrow rules, helps achieve clarity and improves performance in repeated games with uncertainty about the future, and report results from an experiment assessing this hypothesis.
International contracts are difficult to enforce, especially in countries with weak institutions. Hence, oil rich countries can hold up international oil firms by renegotiating taxation once the investment is sunk. If future gains from trade exist, countries can devise a self-enforcing agreement that is "back-loaded" (Thomas and Worrall (1994)). When the country's credibility is low, delaying investment and tax collection enhances the country's credibility. On the other hand, a high credibility country's do not need to back-load the contract. The latter provides a natural empirical counterfactual. Moreover, for the agreement to be enforceable, countries with weaker institutions should receive a higher share of the available rents, especially, in periods of higher uncertainty. Using a novel data set of oil and gas contracts in many heterogeneous countries - more and less credible, we find evidence in line with the theory.
Through the ongoing debate about the deregulation of the Russian natural gas industry and the introduction of challengers to the dominant position of Gazprom, we examine the combination of vested interests that creates formidable obstacles to that evolution. We do so with particular attention to the role of several regulatory entities - the Federal Antimonopoly Service (FAS), the Ministry of Energy (ME), and the Ministry of Economic Development (MED) – that have overlapping responsibilities with respect to monitoring competition, regulating tariffs, and defining and controlling technical standards. We analyze the role of these regulatory entities as meso-institutions, providing intermediation between the macro-layer within which policy-makers define ‘rules of the game’ and the micro-layer within which firms operate in a context of highly demanding technological requirements. In this perspective, an obvious question (without obvious answer) is: how far can meso-institutions go in making the natural gas market more effective and transparent while meeting the socio-technological requirements of this industry and remaining sheltered from political arbitrariness?
What is the best policy to mitigate climate change and manage other multilateral public goods? To answer this question, this paper examines a policy-making game among several countries. Governments choose both a policy's intensity (i.e., how much price or how much quantity) and a policy's type: price or quantity (e.g., carbon tax or emissions quota). The analysis uncovers a novel form of inefficiency: countries could choose price despite the possibility of achieving higher social welfare from choosing quantity. The paper shows that the social welfare from non-cooperatively chosen quantities (e.g., emissions quotas) can dominate the social welfare from even first-best price levels (e.g., carbon taxes). Strikingly, if cost-shocks are global, then global carbon taxes are inefficient unless the marginal abatement cost function's slope exceeds the marginal benefit function's slope times 80,000. JEL Codes: C7, D8, F5, H21, Q28, Q58. Keywords: prices vs. quantities, policy instruments, global pollution
Public authorities are major consumers. Public Procurement represents 10 to 20% of the GDP and an efficient public procurement process should help public buyer to value for money. Nowadays, public procurement is more than a process by which public authorities, such as government or local authorities, purchase work, goods or services from companies with the only value-for-money objective. Through the inclusion of environmental, innovation, industrial or social policy objectives in the public procurement rules it became a real Policy Instrument. Typically, introducing green criteria in the awarding procedure, what is called Green Public Procurement (GPP) or green purchasing, is supposed to make an important contribution to sustainable consumption and production. It is thus considered yet as one of the environmental tools among others (taxes, subsidies, norms) that the public authorities can use to push for an environmental policy at the State and local level. However, is it cost-effective? Buying green is far from being an easy and cheap task. Public buyers need to be aware and trained on how to buy green. How the evolution of Public Procurement Regulation has been put into practice? What are the determinants of GPP uptake? This paper addresses these issues in the case of French municipalities based on an original database build from public data on public procurement as well as from a survey of municipalities related to their behaviours in terms of sustainable public purchasing. Our aim is to study whether variables as the buyers’ GPP awareness, the governance of purchasing services and the size of municipalities influence the investment in green public procurement by municipalities. Moreover, we might highlight additional barriers as the lack of political motivation, the lack of training for buyers as well as a reluctance to change.
In recent decades contract farming has emerged as a popular mechanism to encourage vertical coordination in developing country agriculture. The goal of such coordination is to better integrate smallholder farmers into the modern agricultural food system, fostering rural transformation. We use panel data from a randomized control trial to quantify the impact of different contract attributes on rural transformation and welfare of smallholder rice farmers in Benin. We vary the terms of contract, with some farmers being offered a contract that only guarantees a price, while other contracts add extension training or input loans. While all three types of contracts had positive and significant effects, we find that contracts which only included an agreement on price had nearly as large of an impact as did contracts with additional attributes. This suggests that once price uncertainty is resolved, farmers are able to address other constraints on their own.
We experimentally investigate the problem of a procurer who needs to procure a good or service for which both price and quality matter. To this end, we compare two unidimensional treatments where one element (price or quality) is fixed by the auctioneer and sellers compete on the other dimension, with three bi-dimensional treatments where sellers submit both a price and a quality offer and the contract is awarded on the basis of a "score" that (linearly) combines the two offers. Our results show that, differently from the unidimensional treatments, the bi-dimensional treatments significantly underperform relative to their theoretical predictions, both in terms of efficiency and in terms of procurer's surplus. We argue that this might be related to the higher complexity of the bi-dimensional treatments. To corroborate this intuition, we fit a structural Quantal Response Equilibrium to our data: we obtain very similar estimates for the risk aversion parameter across treatments; on the other hand, the rationality parameter, which measures how close are observed bids to the payoff-maximizing ones, is lower in the bi-dimensional treatments, suggesting that adding a dimension to the strategic decision problem faced by bidders increases the likelihood that they play suboptimally, thus greatly reducing the theoretical superiority of more complex mechanisms.
This paper studies how salespeople affect the choices of which products consumers choose, and from that, how a firm should set optimal commissions as a function of the appeal, substitutability and profit margins of different products. We also examine whether firms are better off promoting products through sales incentives or price discounts. To achieve these goals, we develop a salesforce-driven consumer choice model to study how performance-based commissions incentivize a salesperson’s service effort toward heterogeneous, substitutable products carried by a firm. The model treats the selling process as a joint decision by the salesperson and the consumer. It allows the salesperson’s efforts to vary across different transactions depending on the unique preferences of each consumer, and incorporates the effects of commissions and other marketing mix elements on the selling outcome in a unified framework. We estimate the model using data from a car dealership. We find that the optimal commissions should be lower for popular items and for items that are closer substitutes with other products. We also find that for the car industry we study, the cost of selling more cars using sales incentives is cheaper than the cost of selling the same number of cars using price discounts.
Does political corruption erode civic values and foster dishonest behaviour? I test this hypothesis in the context of Mexico, by combining data on local government corruption and cheating in school tests. I find that, following revelations of corruption by local officials, cheating in cognitive tests by secondary school students increases significantly. The effect is large and robust, it persists for over one year after malfeasance is revealed, and is more pronounced for older students, arguably more exposed to information and to political discussions within and outside the family. The effect is also stronger in areas with higher exposure to local media and in places where the incumbent party was thought to be honest, and therefore corruption revelations have come as a surprise. These findings are validated by evidence from individual survey data which documents that individuals interviewed right after corruption is revealed report to be less honest, less trustworthy and more prone to think that cheating is necessary to succeed, than similar individuals interviewed just before.
We develop a formal theory of decency. Shared values and understandings give rise to social norms. Norms may mandate collectively optimal behavior, but they need not do so. Furthermore, behavior can be affected by social values even if it stops short of norm compliance. Seeking stronger predictions, we propose a structural model of social values; society endorses efficiency and equality, but condemns ill-gotten gains. The model implies that decent people will tend to avoid situations that encourage prosocial behavior. It also rationalizes the existence of willful ignorance, intention-based negative reciprocity, and betrayal aversion.
Gneezy & Rustichini's (2000) study, "A Fine is a Price", tested the basic assumption in psychology and economics that “when negative consequences are imposed on a behaviour", they will reduce it. In their randomized field study of late arrival at Israeli daycares, the authors instead found that late behaviour increased in response to introducing a fine. Gneezy & Rustichini provided an intuitively powerful explanation: the fine operated like a "price" to transform the extra care into a commodity. It crowded out parents' prior internal social motivations and had a counterproductive effect on the target behaviour. The explanation was intuitively powerful; the paper has been cited more than 2000 times. Given the importance of the paper and its behavioural insight, we seek to both replicate the result and explore how robust it is to different methodological approaches. We translate the structure of the original field study to vignette-based experimental surveys with subjects recruited through Amazon's MTurk. The use of experimental surveys and MTurk is increasingly common in empirical legal studies, psychology and economics. Our approach allows us to directly reproduce key conditions from Gneezy and Rustichini's original field study. Experimental conditions and post-experiment questions help untangle the influence of alternative explanations for the original result, distinguishing contractual concerns from social influences. Our initial results do not replicate the original results in our survey setting. The introduction of fines causes a reduction in anticipated late behaviour. We do not see the shifts in concerns about the social / moral evaluations of the behaviour that Gneezy and Rustichini suggested. Our basic results are consistent with the standard narrative that fines tend to deter behaviour – as Gneezy and Rustichini anticipated in their original study.
A requirement for public reasoning pervades the modern state. Much of the story of administrative law, indeed, might be understood as an effort to calibrate the requirement of bureaucrats to provide reasons for their actions. The dominant view among scholars and policymakers elevates the value of reason-giving, illustrated for example by a requirement for reason-giving in proposed bipartisan legislation to protect Special Counsel Mueller from politically-based removal. Yet legal and administrative “realists” have long doubted the efficacy of public reasons, and some argue we ought to be more tolerant of laxity in reasoning. Both central and contested, official reason-giving remains surprisingly unexamined empirically. Neither the boosters nor the skeptics have responsive evidence to support their positions that official reason-giving matters, or not. Drawing from the traditions of experimental economics, this article presents responsive evidence on this issue, reporting results from novel experiments that examine whether reason-giving reduces abuses of fiduciary responsibilities. The results from these exercises suggest that a requirement for reason-giving powerfully deters abusive behavior, notably increasing fidelity to fiduciary standards, but principally if reason-giving is subjected to reasonableness review, as through judicial review. The study informs on-going debates over the proper role of reason-giving and judicial review in the modern state.
Even among themselves, criminals are not seen as trustworthy. However, criminal organizations can use violence to keep criminals loyal. However, such violence is costly if the police investigates. In this paper we study how the choice of loyalty incentives by a criminal organization affects the amount of organized crime and independent crime. Moreover, we study what this implies for optimal police priorities regarding intra-gang violence. We consider an indefinitely repeated labor market, where 'peripheral crime' can be a stepping stone towards organized crime. We study which incentives the organization will provide to its members. If punishment is either not credible or not sufficient, then the boss needs to reward loyalty. This has three effects. First, organized crime is lower because hiring criminals is more costly. Second, peripheral crime tends to increase because peripheral criminals hope to be recruited. Third, organized criminals are relatively well off, while peripheral criminals have to scrape by. The police may raise the costs of punishments. This can only be beneficial if it affects the credibility of punishment, which (i) is not always possible, depending on which resources are reallocated, but (ii) can reduce organized crime, albeit typically at the expense of more peripheral crime.
This paper studies how information asymmetries over inputs between workers and managers affect the response to incentives and selection at the workplace. We develop a principal-agent model with heterogeneity and asymmetric information over input quality and worker type, and test the model predictions using personnel data from a Peruvian egg production plant. Exploiting a sudden change in the worker salary structure, we show that heterogeneity along both margins of input quality and worker type significantly affects workers’ effort choice, firm profits, and worker participation differentially after the implementation of the new incentive regime. Our study reveals how information asymmetries shape the response to incentives and selection at the workplace, with implications for the design of incentive contracts.
Opportunism---either the government’s by changes in regulation and expropriation, or investor’s by deviations from expected investment, output quality, and price---is a powerful deterrent from potentially successful public-private partnerships with substantial sunk investments and welfare externalities. We show that the agents can overcome this double-sided hold-up by exchanging an exit (put) option for the investor and a bail-out (call) option for the government on the investor’s present value of outlays. The exit/bail-out options mechanism increases payoffs by countervailing deviations, and thus facilitates cooperation. We validate the model’s predictions in a laboratory experiment, and further show concurrent exit and bail-out options induce higher rates of partnership formation and sustainability.
We study a principal-agent framework in which the agent has a misspecified model of the principal's project. She fits this model to the objective probability distribution in order to predict outcomes under alternative actions. Under mild restrictions, the agent has correct beliefs on the equilibrium path, but may incorrectly extrapolate how off-equilibrium actions map into outcomes. The agent's misspecification may relax incentive compatibility or even eliminate the incentive problem. We examine optimal workplace design when the principal has discretion over the agent's subjective model, and obtain new results on technology choice, transparency, narcissistic leadership, and relative performance evaluation.
We elicit multidimensional policy platforms from political candidates in consecutive mayoral elections in the Philippines and show that voters who are randomly informed about these promises rationally update their beliefs about candidates, along both policy and valence dimensions. Those who receive information about current campaign promises are more likely to vote for candidates with policy promises closest to their own preferences. Those informed about current and past campaign promises reward incumbents who fulfilled their past promises, as they perceive them to be more honest and competent. Voters with clientelist ties to candidates do not respond to information on campaign promises. We estimate a structural model that allows us to disentangle campaign information effects on beliefs (through updating) and psychological effects on preferences (through making policy salient to voters). Both effects are present in the data. Counterfactual exercises also demonstrate that policy and valence play a significant quantitative role in explaining vote shares. Finally, although these campaign promises have a significant impact, a cost-benefit analysis reveals that vote buying is more cost effective than information campaigns, establishing a rationale for why candidates in these environments do not use them in practice.
When firms are threatened with predation by competitors or the state, wealthy individuals may hide control of productive assets through opaque ownership chains and offshore firms. Leveraging a decision-theoretic model of hiding and political connections, we explore this relationship empirically with a study of Ukraine around the time of the Orange Revolution. Combining information from investigative journalists on control of over 300 key enterprises with rich data on formal ownership ties, we find that oligarchs who were in the opposition before the Orange Revolution were more likely to hide control through a variety of mechanisms. We also observe that oligarchs who were close to the regime in 2004 reversed course after the Orange Revolution, turning to offshore entities to protect their suddenly vulnerable assets. Exploiting presumed geographic variation in political connections, we find similar patterns of hiding in a larger sample of over 14,000 firms.
Our project aims to establish whether targeted provision of constituents’ preferences increases the responsiveness of delegates to the Vietnamese National Assembly (VNA). Utilizing a randomized control trial, we assign legislators to one of three groups: (1) those briefed on the opinions of their provincial citizenry; (2) those presented with the preferences of local firms; and (3) those receiving no informational treatment whatsoever. We also employ a saturation design, applying the treatments to differing shares of delegates across provinces. After the summer 2018 session, we collected behavioral data on delegates from the legislative session, including answers to a VNA Library survey about debate preparation; the identity of speakers in group caucuses, query sessions, and floor debates; and the textual content of those speeches. We find consistent evidence that citizen-treated delegates were more responsive, via debate preparation and the decision to speak; evidence from speech content is more mixed. More speculatively, we find little evidence of spillover from treated to untreated delegates, but substantial evidence of treatment reinforcement. Citizen-treated delegates grew more responsive as more of their peers possessed identical information.
When agents with private information compete for resources from a principal and are biased towards their own favored projects (e.g., a CEO decides which division manager’s project to fund) an agency problem arises. However, possible future interaction can mitigate this problem even without reputational concerns, since an agent who induces acceptance of a low-valued project today consumes resources that crowd out even better opportunities that may arrive in the future. Using the theoretical model from Schmidbauer (Games & Economic Behavior, 2017), we devise experiments to address this organizational environment. Specifically, we study the incentives of competing agents to strategically communicate about their own favored project’s value (high or low) to an uninformed decision maker when new projects arrive over time. After observing all advice from agents, the decision maker decides which project to adopt, if any. If no project is adopted subjects enter the next period with new independently drawn projects and continue indefinitely until one project is adopted. We hypothesize that truth telling is easier to support the larger is the benefit from a high-quality project or the less likely it is to occur, but harder to support as agent competition grows. Our findings are broadly consistent with these hypotheses, though participants respond more easily in changes to incentives than to changes in probabilities.
We study the optimal allocation of authority in a setup with endogeneous information and differing information acquisition abilities. In our principal-agent setting with two- sided information acquisition and no transfers, the players only disagree when uninformed. We show that a sufficiently efficient principal does not lose any authority when delegating to a less efficient agent plus gains from the additional information the agent may have. As information acquisition efforts are substitutes, a relatively more effcient principal finds it easier to influence the agent and provides a recommendation that the agent follows when uninformed. A less efficient principal centralizes fearing that the agent will not follow her advice and follows the agent's recommendation if unable to obtain information herself.
Multinational and multi-product firms often experience uncertainty in the relative return of conducting activities in different markets due to, for example, exchange rate volatility or the changing prospects of different products. We study how a multi-divisional organization should optimally allocate decision-making authority to its managerial members when operating in such volatile markets. To be able to adapt its decisions to local conditions, the organization has to rely on self-interested division managers to collect and disseminate the relevant information. We show that if communication takes the form of verifiable disclosure, then centralized decision-making does not suffer from information asymmetry and it allows the headquarter of the organization to better cope with the inter-market uncertainty. However, a downside of centralization is that it can discourage information acquisition, and this negative effect is amplified by the need for coordinating the activities of different divisions. As a result, the optimality of decentralized decision-making can actually be driven by a large coordination motive.
Despite numerous reports in the public press, there is little evidence for successful manipulation of democratic elections by political interest groups' disinformation campaigns. We ask whether such structural disinformation and election manipulation is theoretically possible in equilibrium. We construct a model, where ideologically heterogeneous news outlets send messages about a politically relevant subject via a news platform (e.g. social media or news aggregator) to ideologically heterogeneous voters, who then make election decisions. We vary the communication technology news outlets have access to: they are either restricted to sending the same message to all voters or they can microtarget voters with individualized messages; voters can be aware of the political position of a news sender, or not. We rank the resulting four games in terms of voter welfare and efficient information utilization and show when an election can be flipped in equilibrium. We discuss policy proposals and conclude that two policies appear favorable: to require news platforms to signal the political position of a message's originator clearly and to support local news outlets.
One Stop Shops for public services, or Citizen Service Centers, have been implemented in at least 70 countries. We evaluate the impact of such centers on a range of citizen related-variables: the time it takes to undertake a typical licensing errand, the physical displacements involved, how information is obtained, and other variables representing transaction costs, red tape and transparency in the citizen-state interaction. The questions are addressed through a novel data collection on one of the most common errands at the Brazilian bureaucracy, driver´s license renewal. We also evaluate if the quality of the socially relevant components of the licensing procedure is affected. Using a Difference-in-Differences methodology, the study evaluates a program that has inspired One Stop Shop reforms in several countries, developed- and developing. We find large reductions in the time expended by citizens and in proxies for transaction costs, suggesting the reform is a good idea, but less encouraging results for the socially relevant variables. We discuss the extent to which incentives to speed up may have prevailed where other steering instruments would be more appropriate, and potential remedies. Based on our data on actual citizen-state interactions, we also discuss limitations to establishing a true One Stop Shop.
I use a formal model to analyze the effect of civil service protections on bureaucratic performance. In a repeated two-period model, a public manager observes a bureaucrat's actions for a period and decides whether to retain or attempt to remove the bureaucrat. Bureaucrats vary in terms of their intrinsic motivation and choose between careers in government or the private sector. I show that bureaucratic performance is greater in any equilibrium in which motivated bureaucrats choose government than in all equilibria in which they do not. Stronger civil service protections reduce the amount of effort that motivated bureaucrats must exert to distinguish themselves from their unmotivated peers in order to ensure retention. This strengthens incentives for motivated bureaucrats to choose careers in government. Stronger civil service protections, however, also reduce the ability of public managers to remove unmotivated bureaucrats. These competing effects yield a non-monotonic and discontinuous relationship between civil service protections and bureaucratic performance. This main result explains inconsistencies in the empirical literature on civil service reform. I use the model to analyze recent reforms to U.S. state and federal personnel management that have significantly rolled back traditional job protections.
We examine whether targeting city mayors during a nationwide anticorruption campaign in China affected the concentration of sulfur dioxide (SO2), a major air pollutant, emitted from local coal power plants. Using the quasi-random timing of mayor investigations in an event study design, we show that investigating a mayor led to substantial reductions in SO2 concentrations at private coal power plants, but not state-controlled coal power plants. Private plants are less connected politically and receive less state support; for them, forming relationships with officials may be a low-cost alternative to environmental compliance. We find suggestive evidence that environmental improvements resulted from an increase in plants’ operation of SO2 pollution control equipment. Our results show empirically that efforts to improve local governance can sustainably reduce pollution.
Using a matching theory perspective, I analyze the extent to which existing and alternative Indian Civil Service state assignment mechanisms can yield balance across three dimensions of interest: quality, embeddedness, and quota. I find that a recent change in the matching mechanism in 2008 has systematically skewed assignments by assigning relatively poor quality bureaucrats to disadvantaged states: regions with external foreign conflict, states with internal political strife, and newly-formed states. This paper i) analyzes the causes of these imbalances, ii) assesses the impact of this mechanism change on state capacity, development outcomes, and bureaucratic performance, and iii) highlights trade-offs in implementing alternate mechanisms. Global balance in quality across states is a unique constraint which arises when applying matching to political economy settings, as the mechanism designer is a paternalistic central planner. Thus, less is left to the market compared to most canonical matching applications. On the other hand, the use of matching in political economy is also novel, and careful understanding of how different matching mechanisms address underlying correlations in the data has far-reaching consequences for bureaucratic performance and development outcomes.
We study, theoretically and empirically, legislative influence over executive agencies, focusing on the breadth of agency responsibilities. We model interest groups, the legislature, and agencies. Politicians exert costly effort to influence agencies in exchange for interest groups’ campaign contributions. Effort, however, can only be imperfectly targeted. When effort is spent on behalf of one group, some spills over to benefit other interest groups. This creates externalities of influence that are larger in broad agencies, deterring legislative influence. Empirically, we develop a novel lobbying-based measure of breadth and combine it with survey data on influence in 70 US federal agencies. Broad agencies report less influence, and additional results suggest this is causal. These results are important for understanding how to insulate divisive tasks from political influence.
The literature on political budget cycles points out that taxes and public deficits are adjusted to alternate fiscal expansions and consolidations according to the electoral cycle. The empirical evidence about public expenditure is controversial. In this paper, we provide an explanation for this puzzle that exploits the difference between expenditure commitments and payments, which characterizes government financial accounting. Relying on data from Italian municipal governments for the period 2000-2014, we find a political cycle in government payments. To detect the drivers of such cycle, we develop a new theory of political behavior featuring a trade-off between career concern and rent-seeking under uncertain politician’s productivity. The payment cycle allows the politician to privately refine his expectation about own productivity, thus relaxing the trade-off between rent-extraction and re-election probability. For this reason, term limits reduce the size of the payment cycle. Such theoretical predictions are confirmed by alternative empirical treatments which help us to exclude identification problems.
TBA
Under some theories of democracy, voters hold politicians accountable for providing growth-inducing public goods which are undersupplied by the market, such as education. But there is very little empirical evidence on whether and when there are direct electoral rewards for public good provision -- and the persistence of poor-quality public goods in many democracies implies the existence of nontrivial obstacles to this kind of accountability. We provide the first experimental measure of the impact of improved schools on electoral outcomes, leveraging the geographically randomized pilot of a public-private school partnership in Liberia. The policy caused an increase in voter registration and vote share for incumbent representatives, especially those from the ruling party. Electoral gains for other ruling-party candidates were concentrated in places where test score gains were largest. We explore incomplete information as an obstacle to accountability, using two additional experiments. In a candidate survey, randomly selected political candidates were given information about the policy's impact. In a household survey, randomly selected respondents were provided with information about candidates' positions on the policy. We explore the conditions in which information appears to be a binding constraint.
While large empirical literature analysed the impact of migration on labour market outcomes of natives, its impact on the entrepreneurship behaviour of the native population has been largely neglected. Using massive refugee inflow to Europe in 2016 as a source of exogenous variation in exposure to mass migration, we find that entrepreneurial activity of natives in the affected transit localities falls considerably compared to the localities that are not affected by mass migration. Our instrumental variable estimates also suggest a substantial fall in natives’ entrepreneurial activity. We provide several additional analyses to understand mechanisms at play and to show heterogeneity in the entrepreneurial responses by population subgroups. Our results are primarily driven by young and middle-aged men (especially in between their late thirties and late fifties). We also find that risk aversion is the main mechanism explaining the fall in entrepreneurial activity.
We design and conduct large-scale surveys and experiments in six countries to investigate how natives perceive immigrants and how perceptions influence their preferences for redistribution. We find strikingly large biases in natives' perceptions of the number and characteristics of immigrants: in all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and are economically weaker - less educated, more unemployed, poorer, and more reliant on government transfers - than is the case. Given the very negative baseline views that respondents have of immigrants, simply making them think about immigration first and then redistribution in a randomized manner makes them support less redistribution, including actual donations to charities. We also experimentally show respondents information about the true i) number, ii) origin, and iii) "hard work" of immigrants in their country. Information on the "hard work" of immigrants generates more support for redistribution.
We examine the relationship between immigration and attitudes to redistribution using a newly assembled data set of immigrant stocks for 140 regions of 16Western European countries. We combine census and population register records with attitudinal data from the biannual 2002-2016 rounds of the European Social Survey. Exploiting within-country variations in the share of immigrants at the regional level, we nd that native respondents display lower support for redistribution when the share of immigrants in their residence region is higher. This negative association is driven by regions of countries with relatively large Welfare-States and by respondents at the center or at the right of the political spectrum. The eects are also stronger when immigrants originate from Middle-Eastern countries, are less skilled than natives, and experience more residential segregation. We show that these results are unlikely to be driven by immigrants' endogenous location choices ("welfare magnets") or by native respondents' sorting in terms of political aliations.
Using data gathered in Northern Lebanon, we analyze the social impact of refugee settlement on the host country. Despite concerns that refugee settlements may result in intensified ethnic conflict and a decrease in out- group social capital, we find that exposure to refugees has a positive impact on native’s reported measures of trust and prosocial preferences toward refugees. Moreover, exposure to recent refugees has a positive spillover effect on other migrant groups: we find that Lebanese natives with a greater degree of exposure to Syrian refugees report higher levels of trust towards Palestinian refugees. Lastly, we show that Lebanese respondents primed to think about the impact of refugees on Lebanon report lower levels of trust towards refugees. However, this effect is driven entirely by respondents with low exposure to refugees, suggesting the exposure also makes individuals robust to responding negatively to the social discourse of the refugee crisis.
We provide strong empirical evidence of decreasing barriers for female artists in a market historically characterized by high gender inequality using an exclusive data set consisting of the population of fine art transactions for Western artists since the millennium. First, controlling for artwork characteristics, we find an average price premium of 4.4% for artworks by female artists at auction driven by female lots from older generations. This reflects larger structural barriers prevalent in the past resulting in a selection of more talented women to enter the profession. Second, while we still find that contemporary female artists are less likely to transition from the primary (gallery) into the secondary (auction) market than male artists we also show a larger increase in the number of female artists traded at auction as well as convergence in average prices between men and women. Lastly, we shot that the superstar effect, where a small number of individuals absorb the majority of industry rewards, prevails; at the top 0.1% of the market, artworks by female artists are traded at a discount of 20%. Overall, we show that as women are becoming more recognized they are breaking through the glass ceiling by moving more into the previously male dominated space at the top end of the art market. Our study has important implications for industries characterized by a superstar effect, information asymmetries and inertia towards underrepresented groups.
Drawing from different, but interlinked strands of the literature, which investigate the political economy of taxation, the impact of women’s enfranchisement on the size and composition of government and the lasting effect of distant history on female outcomes, this study focuses on the interactions between gender inequality, tax structure, and institutions both across time and space. In particular, the paper aims at empirically exploring the historical roots and institutional determinants of the emergence of different gender biases in tax rules and regimes across countries, focusing among others on the role played by the legacy of the timing of women’s enfranchisement, family types and values, and patriarchal norms. Preliminary results show that the timing of women’s enfranchisement and the degree of historical status of women in the family are significantly related to the structure of the taxation systems of different countries at the world level. In particular the share of direct taxes is higher in those countries where the suffrage were extended to women earlier and women historically play a more relevant role within the family.
The adoption of corporate board quotas over the recent years in many European countries has been both remarkable and controversial. We ask how busyness of female directors on boards of financial institutions was affected by the adoption and analyze the consequences for the corporate performance. Examining a sample of 414 European financial institutions between 2009 and 2016 we find that the number of external appointments held by female directors increases after the introduction of quotas. We find no evidence that the new appointments lead female directors to shirk their responsibilities. We conclude that our findings do not support the concerns that gender quotas harm the quality of corporate governance in the financial sector.
Using a unique database of over 20 million firms over two decades, we examine industry sector and national institution drivers of the prevalence of women directors on supervisory and management boards in both public and private firms across advanced and emerging European economies. We demonstrate that gender board diversity has generally increased, yet women remain rare in both boards: approximately 70% of European firms have no women directors on their supervisory boards, and 60% have no women directors on management boards. We leverage institutional and resource dependency theoretical frameworks to demonstrate that few systematic factors are associated with greater gender diversity for both supervisory and management boards among both private and public firms: the same factor may exhibit a positive correlation to a management board, and a negative correlation to a supervisory board, or vice versa. We interpret these findings as evidence that country-level gender equality and cultural institutions exhibit differentiated correlations with the presence of women in management and supervisory boards. We also find little evidence that sector-level competition and innovativeness are systematically associated with presence of women on either board in either group of firms.
Although colonialism is often argued to have a profound implication for post-colonial economic and institutional outcomes, the effect of colonial rules on local power structure remains under-explored. In this study, we propose a hypothesis regarding how the differences in British and French colonial rules shaped the interaction between political influence and accountability of local elites. Given the differences in the approaches to colonial rule, we hypothesize that the association between the greater political influence of local elites and their accountability is weaker in Anglophone countries. Using regression discontinuity analysis on observations within split-by-the-border ethnic homelands between Anglophone and Francophone countries, we present empirical evidence that is consistent with our hypothesis.
To what extent do firms use trust, law, and third-parties to ensure fulfillment of agreements to transact? How do they combine these mechanisms to form transactional governance structures? How do answers to these questions vary across countries? Generating the relevant data requires constructing a survey question answerable by any firm, anywhere. The question is administered in six South American countries. Applied to the resultant data, latent class analysis (LCA) estimates classes that correspond to the transactional governance structures that firms employ to support implementation of agreements. Without imposing an a priori model, LCA discovers meaningful governance structures. Bilateralism appears in all governance structures. Law is never used alone. Bilateralism and formal institutions are sometimes complements, never substitutes. Within-country regional variation in the use of bilateralism and law exceeds cross-country variation. LCA provides the posterior probabilities that each firm uses each governance structure, facilitating testing hypotheses consequent on Williamson's discriminating-alignment agenda.
In this thesis, we will explore what led to the economic development and growth or lack of, in four African Countries with an imperial history. The countries chosen, have two different modern trajectories, the first of the countries; The Democratic Republic of Congo and Kenya have a history of European colonization, whilst Ethiopia and Eritrea, resisted European colonization. In this study, we will look at the reasons why the countries developed the way they did, what led to their colonization or resistance, how the different type of settlements influenced the already existing formal or informal institutions or led to their creation, and if there is a relationship between introducing these post-modern institutional structures on the economic development of each country and to what extent did that affect economic, political and social growth. The main idea behind this thesis is to check which existing literature already exists to explain the modern trajectories and to what extent did they go, we will also look at arguments which may lead to current ideas and theories in the formulation of this research. We are aware that this type of research topic is new in the academic world and will be adding to the nonexistent research on the African Countries we have chosen. We will also use the new institutional economics ideas to help explain some of the results we might find.
The World Bank’s Doing Business Reports have evoked an intense policy debate about whether countries should simplify regulatory rules in order to stimulate investment and growth or make them more stringent in order to achieve public policy objectives. Both sides of this debate however, assume that the business environment in developing countries is defined and determined by the exact implementation of these rules by the state and by firms, an assumption demonstrated to be false by a number of studies. These studies seem to indicate that rather than these rules, doing business in developing countries is based on deals struck between firms and the political or bureaucratic arms of the state. In this paper, we undertake a cross-country analysis of the relationship between the rules related to doing business and these deals, particularly in the context of the state’s capability in implementing them. Using data from the Doing Business reports, the World Bank’s Enterprise Survey and other sources, we show that (i) while there is a relationship between rules and deals, it is a weak one and (ii) this relationship is itself dependent on the level of a country’s state capability, with the impact of rules on deals getting further weakened if the state capability is low and (iii) with stringent rules and very low levels of state capability, the relationship becomes perverse, with more stringent rules leading to less compliance, rather than more. Based on these results, we provide a diagnostic approach to rules reform where the appropriate reform depend on the level of stringency of the rules in a country, and the level of its state capability.
A large literature assumes that when an impersonal property regime with clear rules and enforcement power exists, trades will be enforced by this authority according to the specified rules. This abstracts away from the fact that property regimes are not omniscient, and thus cannot achieve this allocation; rather, they allocate property according to a second set of rules that prescribe the means by which rights may be asserted in litigation. We build a simple game-theoretic mode to examine the implications of the fact that, even in societies whose property regimes have clear rules and substantial enforcement capacity, effective property rights are determined by conflict. The model treats as active choices whether to attempt to trade, whether to cheat, whether to litigate, and how much to expend in the effort to win the case. Beyond the anticipated result that these regimes are vulnerable to the same distortions that exist in “states of nature,” we obtain novel results: We find that economic specialization improves a property regime’s effectiveness in correctly allocating disputed resources, decreasing property expropriation. This suggests that effective property regimes not only promote specialization, but may actually require some level of specialization to develop. We further find that factor markets may relate to each other in unexpected ways: Rather than all markets benefiting from a more effective property regime, as is conventionally assumed, an increase in a labor market’s efficiency may undermine efficiency in other factor markets by making conflict over capital resources more appealing. Thus the relationship between a state’s property regime and its markets may be more nuanced than previously thought.
To what extent does the presidential appointment of judges impact judicial decision making? We document a substantial increase in judicial independence as a result of a 2010 judicial selection reform in Pakistan which changed the selection procedure of the judges from the presidential appointment of the judges to the selection of judges by a judicial commission (consisting of peer judges). Using mandatory retirement age as an instrument for new appointments, we estimate the causal effect of the change in appointment procedure on judicial independence. We present evidence against key threats to identification. Analysis of the contents of the cases reveal that better enforcement of laws regulating land disputes with government agencies is a key mechanism driving these results. We find evidence consistent with the selection mechanism where the judges appointed by the judicial commission are significantly less likely to be politically active prior to their appointments compared to the judges appointed by the president. We also find that the regions where more judges are appointed by the judicial commission have higher investments in the housing industry. This is consistent with the anecdotal accounts that suggest that the new selection reform lowered the risk of land expropriation, particularly in the housing sector.
We consider the effects of filibuster change on judicial appointments, judicial voting, and opinion drafting. The filibuster effectively empowers a minority of forty-one Senators by requiring sixty votes to break off debate on a nomination. We develop a game-theoretic model that explains that the elimination of the filibuster changed the relevant “pivotal Senator” whose support was necessary to secure a nomination. Freed of the power of the minority of Senators, Presidents ought to exercise freer rein in naming judicial nominees closer to their preferred ideology. Moreover, sitting judges who seek elevation to a higher court ought to alter their “signal” that they would be good candidates to match the preferences of the newly-relevant pivotal Senator. To test our hypotheses empirically, we use the 2013 elimination of the filibuster in the U.S. Senate for lower federal court judicial nominations as a natural experiment. Looking before and after the change in filibuster rule, we find statistically significant support for shifts in the characteristics of judges appointed, the voting of sitting judges, and the language used by sitting judges in politically-charged cases.
We provide theory and evidence on how political polarization at the mass level affects politicians' policy decisions in common value issues. In the model, politicians representing two groups of voters with divergent ideologies compete for office. Voters have limited information about policy as well as politicians' competence in policy making. After observing the incumbent's policy choice, voters make voting decisions. We study two variations of election. First, there is a majority group and a minority group in the society. Second, society is composed of two competitive groups. In both variations, we show that in a society with a high level of polarization, the incumbent politician is more likely to exercise her expertise regarding common value issues. We take these predictions to data in the context of state supreme courts. We find that under partisan elections, judges who joined the court when polarization was high write higher-quality decisions (receiving more citations from other judges) than judges who joined when polarization was low.
We study optimal policy experimentation by a committee. We consider a dynamic bargaining game in which committee members choose either a risky reform or a safe alternative each period. When no redistribution is allowed the unique equilibrium outcome is generically inefficient. When redistribution is allowed (even small amounts), there always exists an equilibrium that supports optimal experimentation for any voting rule without veto players. With veto players, however, optimal policy experimentation is possible only with a sufficient amount of redistribution. We conclude that veto rights are more of an obstacle to optimal policy experimentation than the constraints on redistribution themselves.
We develop a formal model that expands, and in the process radically alters the basic Walrasian model, by incorporating costly information into it. In the Walrasian model, where information is costless, actors in the market are consumers and producers and prices are all they react to. Moreover, property rights are well-defined and there is no dissipation. In our model information is costly and this changed assumption does not merely add a third axis to the traditional two. Rather, costly information affects the contents of the two variables. For instance, changes in information cost affect the supply function via the decision to switch from producing for the market to producing within the firm. Regarding consumption, consumers require information to learn about the existence of commodities, their quality and their prices, thus affecting the consumption function. The costliness of information implies that transaction costs are positive and property rights are not well-defined. As an additional result of the costliness of information, besides buyers and sellers, also emerging are intermediaries. In our model, beside buying and selling, the parties engage in activities that include measuring, deception, waiting in line, erecting fences, establishing reputation and guaranteeing, all of which are absent from the Walrasian model. Whereas property rights are not well defined, the parties act so as to minimize the dissipation. Our model enables us to make predictions regarding such phenomena as the change in the make-up of hamburgers as we move from buying them in supermarkets to buying them for take-outs to buying them in restaurants where land rent is cheap and in ones where land rent is expensive. It also makes predictions regarding intermediation and horizontal and vertical integration. The usefulness of our model is demonstrated by recognizing that the Walrasian model is incapable of making many of the predictions we are able to derive from our model.
The purpose of this paper is to present the methodology we have been developing to explore the thematic structure of a collection of texts and its dynamic without an appropriate a priori understanding of the relevant categories and concepts. Since we believe that this methodology is particularly promising for studying the organizational and institutional phenomena thanks to relevant archives or digital tracks, we chose to focus our attention on the “archive” of the Society for Institutional and Organizational Economics (SIOE) that celebrated its 20th anniversary in 2018. This archive comprises the abstracts of more than 3 000 papers that were presented at the 21 annual conferences of the society organized between 1998 and 2018. The dynamic topic modeling of this data highlights two major trends. First, there is over time a reversal of fortune between the study of institutions and the analysis of organizational arrangement that have been being becoming dominant from the 2010’s. Second, within each main domain of investigation, a shift from a broad approach contrasting alternative orders (e.g. market vs. hierarchy, private vs. collective property), to a micro-analytical approach of mechanisms (either contractual, organizational or institutional) can be observed.
This paper offers a first step towards introducing social identity into international economics. We develop a simple framework to study the interaction between identity politics and international integration, allowing identities themselves to be endogenous. Contrary to widespread intuitions, we find that a robust union does not require that all members share a common identity. Nor is a common identity likely to emerge as a result of integration. Furthermore, while national identification in the periphery leads to premature breakup, a common identity can sometimes lead to excessively large unions. The general result is that a union is more fragile when periphery countries have high ex-ante status. Low-status countries are less likely to secede, even when between-country economic differences are large and although union policies impose significant hardship. We trace the implications of the model for likely entrants and defectors from the EU and the Euro.
We develop a dynamic model of multi-dimensional politics to ex- plore how political cleavages, policies, and social identities interact over time. The model yields insights into the profound political changes we have witnessed around the world, as economic shocks and trend- wise breakdowns of traditional social hierarchies have reinvigorated nationalist sentiments. We show how such sentiments can shape im- migration policy, and how this may shape the outlook for the next gen- eration. Shifting outlooks are reflected in political preferences implied by social-identity choices, which are modeled as a process of cultural evolution. Expected policy thus feeds back to political preferences, rooted in endogenous social identities. Once we allow for endogenous political organization, formation of social movements or new politi- cal parties, the model can also encompass mechanisms of hysteresis, such that temporary shifts in nationalism can have permanent effects.
Using 14 national censuses and a wide variety of first-hand accounts, I trace the transformation of Japan's putative outcastes and their nominal human rights organization into a heavily criminal extortion machine. Scholars have long described the outcastes -- the "burakumin" -- as descended from a pre-modern leather-workers' guild. Their members suffer discrimination because their ancestors handled carcasses, and ran afoul of a traditional Japanese obsession with ritual purity. In fact, most burakumin are descended not from leather-workers, but from poor farmers with distinctively dysfunctional norms. Others may or may not have shunned them out of concern for purity, but they certainly would have shunned many of them for their involvement in crime and their disintegrating family structures. The modern transformation of the buraku began in 1922, when self-described Bolsheviks lauched a buraku "liberation" organization. To fit the group within Marxist historical schema, they invented for it the fictive identity as a leather-workers' guild that continues to this day. Bitter identity politics followed. Within a few years, criminal entrepreneurs hijacked the new organization, and pioneered a shakedown strategy that coupled violent accusations of bias with demands for massive amounts of money. Selective out-migration and spiraling levels of public subsidies ensued. The logic follows straightforwardly from the economic logic outlined by Becker and Hirschman: given ever-larger amounts of (expropriable) subsidies, burakumin with the lowest opportunity costs faced ever-larger incentives to stay in the buraku and invest in criminal careers; given the virulent public hostility that this strategy generated, those burakumin with the highest legitimate career options abandoned the community and merged into the general public instead.
Undeveloped institutions of the rule of law in modern Russia have placed violent pressure on businesses via unscrupulous law enforcers. Since 2011, the Russian federal government has made several attempts to address this problem, but all of them have failed. In a situation in which it is not possible to centralize corruption, the second best mechanism could involve "manual control" at the regional level through the replacement of governors. From data on 550 court cases against entrepreneurs taken from the Center of Public Procedures "Business against corruption" (CPP BAC) database for 2011 to 2016, we analyze the effect of political competition and the tenure, ties and replacements of governors on levels of violent corporate raiding in Russian regions. We show that after 2011, regional elites in Russia lost the preexisting opportunity to extract rents from businesses in return for strong voting results for Vladimir Putin and United Russia.
Are investors in electoral authoritarian regimes discriminated against for political activism? In this study, we implement a simple experiment to test whether affiliation with the ruling party or the political opposition affects the probability that potential investors receive advice from investment promotion agencies in Russian regions. Between December 2016 and June 2017, we sent 1504 emails with a short question and a number of randomized treatments to 188 investment promotion agencies in 70 Russian regions. Although investment promotion agencies are nominally depoliticized in Russia, we find that switching the political affiliation of a potential investor from the opposition party “Yabloko” to the government party “United Russia” on average increases the chances to receive a reply by 30%. The effect strongly depends on regional levels of political competition, with higher levels of discrimination in regions that are less politically competitive.
We document methods employed by Russia’s Internet Research Agency to influence the political agenda of the United States from September 9, 2009 to June 21, 2018. We qualitatively and quantitatively analyze Twitter accounts with known IRA affiliation to better understand the form and function of Russian efforts. We identified five handle categories: right troll, left troll, news feed, hashtag gamer, and fearmonger. Within each type, accounts were used consistently, but the behavior across types was different, both in terms of “normal” daily behavior and in how they responded to external events. In this sense, the Internet Research Agency’s agenda-building effort was “industrial”-- mass produced from a system of interchangeable parts, where each class of part fulfilled a specialized function.
We model a sophisticated form of reserve price underpricing in public procurement and provide evidence for the existence of this corrupt equilibrium in Russian public procurement. Setting the reserve price at a relatively low level can prevent the waste of government funds and may discourage inefficient firms from participating. We however show theoretically that, given the right conditions and market structure, reserve price underpricing may also be a corrupt equilibrium that makes the corrupt procurer-seller pair better off. Moreover, this equilibrium can be sustained without side-payments. Our data analysis reveals that this strategy is also applied in Russian public procurement auctions. We indeed find cases of underpricing which are characterized by less competition and an increased likelihood of having only one bidder. Corrupt sellers are also more likely to win auctions and there often, but not always, still is a small rebate, as predicted by the model.
Is a formally independent judicial system able to check abuses of political power? In this paper we show that candidates in Brazilian local elections who narrowly win an election are 60 percentage points more likely than candidates who narrowly lose to be acquitted in corruption cases filed against them before the election. We show evidence suggesting the effect comes from a direct influence of the power of elected politicians over law enforcers, rather than from elected politicians having better lawyers.
Evidence shows that audits can reduce corruption, but also that corrupt officials are able to substitute to alternate forms of corruption and to adapt over time to the anticorruption system in place—especially when the anticorruption policy imposes controls only on certain types of corruption. This paper studies the possible unintended consequences of such selective anticorruption monitoring, in the context of a large random audits program in Brazil that has proved successful in reducing the misuse of federal funds at the municipal level. By exploiting the random assignment of Brazilian municipalities to the program, we document the existence of unintended (and undesirable) consequences: audited municipalities employ more labor in water provision, and this translates into a more inefficient service, in the sense that providers in audited municipalities use more labor for a given level of output and other inputs. We also provide additional evidence consistent with the idea that local officials may be using their discretion in hiring to substitute between different forms of corruption.
We analyze model economies populated by individuals who care about their own income and wealth but also regard their position relative to the economy's average values of these variables. Furthermore, these individuals differ in their initial wealth. We consider inequality averse and competitive populations. Poor individuals are inferiority averse in both cases while rich individuals are superiority averse in the former but superiority seeking in the latter case. We investigate the impact of such preferences and wealth inequality on incentive contracts, output, and welfare. Unlike former agency models with inequality aversion within firms, we find that increasing inferiority aversion at the societal level tends to raise equilibrium effort and reduce wage costs. The same holds also for superiority seeking workers. By contrast, raising superiority aversion lowers effort and increases wage costs. A parameterized version of the model which roughly mimics some key features of the industrialized world shows that, even under inequality aversion, increased initial wealth differences lead to higher average output, entail distributional utility losses, and result in a more uneven income distribution.
In the management literature the need to reduce organizational conflict is a frequent topic. Economists, in contrast, have argued that functional employment relationships require a certain level of conflict, because a healthy conflict culture helps to overcome incentive problems caused by incomplete contracts and asymmetric information. In this paper we use a laboratory experiment to explore the role of conflicts in a principal-agent setup with subjective performance evaluation. We provide empirical evidence that conflicts can indeed be efficiency-enhancing even in complex environments. At the same time, however, our study also demonstrates that establishing a conflict culture is a delicate matter. If conflicts are encouraged in a careless, hands-off manner, the destructive side of conflicts is likely to dominate. A functioning conflict culture requires a careful management of norms. In our experiment we find that conflicts have positive net effects only if an explicit code of conduct is established and conflicts are institutionalized through a grievance process.
I examine a principal-agents model of subversion with externalities and identify a novel explanation for how diversity can be valuable to organizations: teams of diverse agents will at times self-manage their agency problems. Generally, this model explores how and when integrating fringe or ideologically extreme agents can align incentives between the principal and teams of agents. This technique is shown to function better relative to other contracting techniques in settings that are bureaucratic and low-information. Self-managing teams are explored in the context of Islamist terror groups that use foreign fighters. Because foreign and domestic fighters have conflicting preferences over what types of activities the group should be conducting, if foreign and domestic are integrated onto a team, then the team may self-regulate with efficiency gains for the principal. This model explains variation in agency problems and foreign fighter usage in major insurgent groups, including al Qaeda in Iraq, the Haqqani Network, and the Islamic State.
Was censorship effective in 16th century European society? We present a new database of the population of books censored by the Catholic Church during the Counter-Reformation period (16th and beginning of 17th centuries) containing information on titles, authors, topics (religion, sciences, social sciences and arts), languages, georeferenced printing places and printers. We describe patterns of censorship across political entities in Europe over time, using the index produced in Rome (starting in 1564) as well as local indexes of prohibited books such as the Index of Louvain and the Index of the Spanish Inquisition. We then test the effects of censorship on the number of printed books, on the location of thinkers, on the spread of Protestantism and ultimately on city growth. Preliminary results suggest that Catholic censorship did have an impact on the publication of books, on the diffusion of knowledge and on economic growth
Institutions have become a paramount focus in the economics of growth. Institutions, however, can be formal - statutes, courts, and enforcement organizations - or informal - complex systems of cultural norms which constrain the behaviours of defectors. In this paper, I investigate the extent to which these two types of institutions interacted in determining comparative patterns of development within, and the general underdevelopment of the now Canadian province of Newfoundland and Labrador. I leverage a natural experiment resulting from Newfoundland's confederation with Canada, exploiting geographic variation in the location of settlements identify the interaction of informal institutions that arose in early settlements with the formal institutions that were established later. Settlements established during Admiralty Rule in Newfoundland were characterized by limited formal governance and a heavy reliance on custom to protect property rights and solve other collective action problems. My results comprise an interesting case of "reversal of fortune": once prosperous early settlements experienced stagnant growth after confederation relative to settlements that emerged under formal institutions. This implies that customs in these early settlements, when interacting with Canadian institutions, undermined the efficacy of both types of institutional arrangements.
What drives individuals to become insurgents? How do negative shocks explain social unrest in the long-run? This paper studies the triggers of rebellion at the individual level and explores the long-run inter-generational transmission of conflict, using a unique dataset constructed from administrative archives. Drawing on evidence from the Great Irish Famine (1845-1850) and its effect on the Irish Revolution against British rule (1913-1921), we find that rebels were more likely to be male, young, Catholic and literate. Moreover, we provide evidence showing that individuals whose families had been most affected by the Irish famine were more likely to participate in the rebellion. These findings are also confirmed when controlling for the level of economic development and other potential concurring factors, such as past revolutions and soil quality. Robustness checks based on the role of family names for studying socio-cultural persistence across generations support the above findings. The instrumental variable analysis, based on the extraordinary meteorological conditions that determined the spread of the potato blight that caused the famine, provides further evidence in support of the inter-generational legacy of rebellion.
Abstract We document determinants of control rights in union contracts using a new corpus of 30,000 collective bargaining agreements from Canada from 1986 through 2015. Using ideas and methods from computational linguistics, we extract measures of rigidity and worker control from the text of the contract clauses. Motivated by a model of efficient contract design, we analyze how rigidity and authority in contracts varies according to firm-level factors and external factors. We document that contracts impose obligations equally on firms and workers but give entitlements mostly to workers. An increase in personal income tax rates is associated with an increase in worker entitlements, consistent with substitution away from taxed compensation (income) and toward untaxed compensation (control rights as amenities). Lower local sectoral unemployment rates and provincial governance by pro-labor parties is associated with increased worker authority, consistent with effects of changed bargaining power for workers. Worker control also reduces labor conflict: while unanticipated real wage shocks from COLA clauses increase the probability of a strike, this effect is attenuated in contracts with a high degree of worker control.
The widespread practice of equity-based compensation has transformed skilled labor from a labor input into a class of human capitalists that are de facto firm owners. This paper studies how globalization, via access to foreign inputs, affects this development. To study the empirical relation between input imports and compensation contracts for highly skilled labor, I combine data on managerial equity ownership and incomes for public firms in the U.S. and U.K. with international input-output data. I document that managers in more offshorable industries obtain larger levels of compensation and own more equity wealth. Using a shift-share instrumentation strategy based on variation in foreign input supply and trade costs, I find that input imports provoke a reallocation of managerial compensation towards equity ownership. This finding is driven by the largest firms in the economy and suggests that equity wealth inequality becomes more prevalent than income inequality for top earners in an open economy. To rationalize these findings I develop a heterogeneous firm assignment model in which firms choose to compensate managers with equity to alleviate agency frictions. In the model, agency frictions depend on firm size such that globalization provokes a reallocation of compensation towards equity ownership for top earners. Calibrating the model to micro and macro moments in U.S. and U.K. data, I illustrate that globalization accounts for substantial heterogeneity in compensation contracts. Ignoring the ownership of equity results in substantial mismeasurement of the returns of globalization to highly skilled labor and financial incentives.
In China, all employment relationships must be covered by a written labor contract which considerably strengthens employment protection for workers. Using a unique longitudinal dataset, the China Labor Dynamics Survey (2012-2016), this paper estimates the impact of the contractualization of labor relations on workers' welfare, job satisfaction, and labor market outcomes. Our estimations show that getting a labor contract leads to an increase in workers' salary, insurance participation, and income satisfaction. Results are robust to the addition of individual fixed effects to control for potential unobserved heterogeneity
We document that the U.S. economy has experienced over the last 25 years sharply declining numbers of listed firms, abnormally large volumes of mergers and of private equity investments, and abnormally high aggregate valuations for U.S. listed firms. We synthesize and empirically analyze these trends and their interconnections and document the recent emergence of a new model of equity finance in the United States. We show that the listing gap identified by Doidge, Karolyi, and Stulz (2017) was caused by a merger wave occurring between 1997-2001, which directly reduced the number of listed firms, and by the rise of the private equity industry, which curtailed new listings through IPOs. Our model of equity financing well explains changes in the number of listed U.S. firms before and after the 1997-2001 transition to the new equilibrium. We conclude that this new model of equity finance has yielded financial and developmental benefits for the U.S. economy, although the merger waves have increased industrial concentration and the privatization of equity finance has potentially contributed to wealth inequality. Finally, we present preliminary evidence that this new model of equity financing is emerging in other developed countries.
The First Global Era (1870-1914) was not just about the Royal Navy securing the sea lanes and the Pound sterling towering over the international financial system. Rule Britannia, with all its explicit power relationships, rested as well on a wealth of private rules and self-governed institutions that made global trade possible, and even reasonably secure and stable. While this private side of hegemony has been well identified for a long time, the actual construction of global markets, from a micro-perspective, remains largely unexplored – at least when one looks beyond finance
This paper investigates the influence of managerial-induced uncertainty on firm performance through a transaction costs economizing lens. I define managerial-induced uncertainty as frequent and hard to predict changes in the interaction rules between a seller and buyer that are generated by a trading party managerial action. In the presence of managerial-induced uncertainty, the costs of transactions are higher, impairing the economic activity, and resulting in lower performance levels. Using a dataset of stadium attendance and revenues in matches of the major soccer championship in Brazil, the empirical results point to negative effect of manager’s deliberate and intense changes in price and place on attendance and revenues. The findings contribute to advancements in Transaction Costs Economics (TCE) literature, as well as the to the link between TCE and management literatures.
Should organizations reorganize gradually or abruptly? Why do some software applications periodically undergo major, disruptive overhauls? We model how to adapt the design of complicated systems in response to continuous pressure to change. The key premise is that design interdependencies may impede adaptation: adjustment of maladapted design elements may cause painful dislocations elsewhere in the system. We show that for sufficiently complicated systems, optimal adaptation may involve abrupt reorganizations, where (in periodic episodes) the designer allows maladapted elements to accumulate up to a critical mass before deleting them altogether. Such abrupt reorganizations are associated with sudden reductions in functionality, technical debt, and overall performance.
In this paper we study the interrelation between decentralization, involvement in innovation and success of innovation activity of firms that operate in an environment with weak institutions. We argue that decentralization has a significant potential to enhance innovation at firms through promoting more efficient use of information, enhancing motivation of employees, generating more pro-creative work environment. We suggest that the value that decentralization can bring to firms’ innovation potential can be so important, that decentralized firms can be more innovative and more successful in innovation activity even in an environment with weak institutions. We test our hypothesis empirically using data on firms from Hungary. Our empirical results demonstrate that decentralized Hungarian firms are more likely to innovate. Moreover, decentralized Hungarian firms are more successful in innovation in a sense that they are more likely to bring to the market innovative products that are new not only to the firm, but also to the market. The gap in involvement in innovation and success of innovation activity between the decentralized and centralized Hungarian firms is very significant. Our results contribute to better understanding of potential of decentralization of firms even in an environment with weak institutions.
We map the evolution of the Chinese anti-corruption legislation and document a large stable fall in prosecuted cases after a reform that strengthened leniency and asymmetry of sanctions in 1997. This is consistent with either reduced corruption detection, or improved deterrence. To resolve the ambiguity and shed light on the question of whether leniency policy might help fighting corruption, we start with an empirical investigation into the case of China, to our knowledge the earliest attempt to use this type of tools. We also substantiate the thesis that while invoking one legal asymmetry may be a good idea, combining two of them is not, by setting up a game-theoretic model in which this is true. We use the model to derive a series of testable predictions to subsequently refine the empirical analysis. Results point to a lack of deterrence effect, plausibly linked to a different aim of the reform: a refocusing of effort from "flies" to "tigers".
This study presents novel evidence on the effects of conflict on trade in non-conflict areas. We examine the context of the ongoing Russian military intervention in Ukraine. In a difference-in-differences framework, we leverage a newly compiled firm-level panel with the universe of Ukrainian trade transactions from 2013 through 2016 and exploit substantial spatial variation in the ethnic composition of Ukrainian counties. The estimates suggest that Ukrainian firms from counties with fewer ethnic Russians experienced a deeper decline in trade with Russia. We argue that this result stems from increased ethnic tensions and a differential rise in negative attitudes and beliefs about Russia. Possible mechanisms include consumer boycotts of Russian products, reputational concerns of Ukrainian firms, and a breakdown of trust in contract enforcement. In contrast, we find no evidence for individual-level animosity between firms' key decision makers or discrimination at the border. We also rule out that the differential decline in trade arises only from economic spillovers, such as refugee flows and destruction of supply chains with conflict areas.
Enemies of the people were the millions of intellectuals, artists, businessmen, politicians, professors, landowners, scientists, and auent peasants that were thought a threat to the Soviet regime and were sent to the Gulag, i.e. the system of forced labor camps throughout the Soviet Union. In this paper we look at the long-run consequences of this dark re-location episode. We show that areas around camps with a larger share of enemies among prisoners are more prosperous today, as captured by night lights per capita, firm productivity, wages, and education. Our results point in the direction of a long-run persistence of skills and a resulting positive effect on local economic outcomes via human capital channels.
Additive manufacturing is poised to transform production of many parts and finished goods. Little is known about its effects on work. The paper provides the first analysis of differences in tasks and skills of core production employees – engineers, technicians and operators – in additive manufacturing (AM) and traditional manufacturing (TM). In order to control for unobservable heterogeneity that may affect tasks and skill requirements, we focus on hybrid AM-TM manufacturing establishments (plants). We study 1,304 US plants that posted jobs for both AM and TM core workers during between January 2014 and February 2019. We find that, for the three occupations, AM vacancy postings reflect considerably more complex tasks, slightly more interdependent tasks and require more cognitive, social and technical skills than TM postings.
What are consequences of the ongoing digitalization and automatization for the labor market? We analyze to which extent types of occupations and skill requirements change over time and how these insights can be used to substantiate demand for reskilling of several groups of employees. To answer these questions, we make use of a novel approach in which we combine unstructured data from the Internet with structured data from labor market forecasts. Based on a dataset of 95% of all job vacancies in the Netherlands over a 6-year period with 7.7 million data points, we show which skills are particularly important for which type of profession. Besides, we provide job transition opportunities for employees from shrinking sector or occupations to sectors and professions not affected negatively by technological change. Our results suggest that the labor market is undergoing a transitions from degree-based to skill-based demand. This has consequences for both the participants and the institutions connected to the labor market.
This paper investigates the relationship between organizational practices and workers' type of education in affecting firms' productivity. Using Swiss firm-level panel data covering the period 1996-2015, I estimate complementarities among workers' type of education and a large set of organizational practices which are aggregated to three domains: decentralization, incentive pay, and work design - where work design comprehends job rotation, teamwork, and hierarchical layers. I consider workers with four types of education: no post-compulsory education, upper secondary vocational education and training, tertiary professional education, and tertiary academic education. The results indicate that the complementarity between the extent of firms' decentralization and education is similar for workers with no post-compulsory education and workers with an upper secondary vocational education and training, while complementarity is higher for tertiary educated workers. In contrast, the estimations reveal no complementarity between incentive pay schemes and higher level of workers' education. Finally, the results indicate complementarity between work design and tertiary educated workers, both professional and academic ones.
A key strategic decision for many firms is the breadth of its relationships with its partners. Whether those partners are suppliers, commercial buyers or complementors, firms must decide how many different activities to include in their transactions with them. Existing economic theories of relationship scope are limited in that they do not consider the implications of the fact that most firms transact within networks of partners. They focus on dyads only. In addition, those theories tend to consider one-sided moral hazard only, whereas many partnerships involve two-sided moral hazard. Organization theory, on the other hand, tends to rely on the notion of emotion- or norm-based trust to explain relationship scope, though such is not present and hard to establish in many settings. We develop a general theory of partnership scope in interfirm networks that addresses these deficiencies. We show how, by broadening the scope of business it conducts with a partner, a firm can sustain a self-enforcing exchange relationship with that partner (a “relational contract”) in which both parties cooperate with each other repeatedly, thereby maximizing the value created by the relationship. We provide numerous examples of empirical settings in which our model applies, including franchising, supply chains, and platform-based ecosystems.
We study changes in firms' sourcing behavior following negative shocks to their supply chains. We identify the impact of shocks to relationships between U.S. buyers and their foreign suppliers using recalls of consumer products for health or safety reasons. Compared to a control group, U.S. firms that source a recalled product from an unaffiliated supplier are more likely to discontinue orders from the supplier subject to the recall and increase their reliance on alternative suppliers. In contrast, buyers that are vertically integrated with the suppliers of recalled products maintain their reliance on the same suppliers. We interpret these findings using a model of buyer-supplier relationships, in which firms with larger market sizes benefit more from vertical integration and find it optimal to maintain these integrated relationships in the face of adverse shocks.
This paper examines the surprising persistence of informal economic exchange in the reinsurance industry. Remarkably in light of their risk level, stakes, and complexity, reinsurance contracts were for most of their history concluded very informally, including by handshake, scribbles on a napkin, or a “slip” of a couple of pages. This form of contracting continued substantially well into the Twentieth Century, with contract documents leaving key terms “to be agreed” or entirely unspecified. The industry historically governed itself under an “utmost good faith” norm for business relationships, and disputes were arbitrated by industry experts under this remarkably general standard. Today, by contrast, reinsurance contracts are often recorded in documents of over 100 pages. This paper will describe the network structures, the social and business practices, and the economic characteristics of the business that allowed the reinsurance industry to maintain such informality in contracting for such a long time, including as insured risks grew more valuable and complex over the Twentieth Century.
Existing research on distributive politics mainly focuses on the influence of electoral competition between political parties, but less is known about non-electoral mechanisms of resource allocation inside a dominant party. This study examines how informal patron–client networks within the ruling Communist Party shape the distribution of intergovernmental transfers in China, a major one-party regime. Using a new dataset on city-level fiscal transfers and a novel method to infer informal political connections through past promotions, we show that provincial leaders allocate significantly more transfers to localities governed by officials who are part of their networks. This bias persists even when we use a specification that only exploits variations in connection caused by exogenous turnovers of higher level leadership. We evaluate two plausible motivations behind this bias: collective corruption and network-based policy coordination. We find that favoritism does not increase with any measure of individual- or regional-level corruption. However, consistent with the second mechanism, transfers yield better economic performance and a higher degree of policy alignment when given to clients rather than non-clients. These findings underscore the role of private networks as an important, albeit costly, tool of mobilization in one-party systems.
This paper investigates empirically how dictators compensate losers of reform among their constituents by conducting a synthetic comparative study on China's government restructuring in 2001. Students of dictatorships have long noticed the importance of power-sharing arrangements or patronage distribution in authoritarian politics. From this perspective, when dictators implement the reforms that alter the initial power-sharing relationship between them and their supporters, the authoritarian stability will also be disrupted. As the voluminous literature on political economy of reforms has shown, we see various kinds of dual-track solutions where, in addition to the track where reforms are implemented, a non-reform one is created at the same time for (potential) losers of them to be compensated. Drawing upon an important conceptual distinction between office- and rent-seeking politicians in the political economy literature (Persson and Tabellini, 2000), I argue that, these two sets of motivation---i.e., offices and rents---can actually be alternatively interpreted as two different "powers" in the context of full authoritarianism where both are centrally controlled by dictators. Through a comparative case study on China's 2001 government restructuring, I show empirically that dictators can not only share the power-as-offices with a certain number of elites to solicit their cooperation in policy, but also compensate the remaining losers of the competition for offices with the power-as-rents. As for the empirical design, this study leverages the fact that, during the restructuring, the bifurcated development among the pillar industries forms a clean distinction between treated and untreated sectors when the government reform is viewed as a treatment. I not only employed a synthetic control method for estimating the effect of the treatment, but also conducted a placebo test to make sure that the findings were robust.
The latest debate about Chinese state owned enterprises (SOEs) revolves around whether there is a positive association between ownership and control, or whether all firms in China are similarly captured by the government. The recent Chinese Communist Party (Party)’s policy mandating all SOEs to amend their corporate charters to enhance the Party’s control has provided us with a rare opportunity to empirically investigate this question. We find that the state’s equity interest is positively correlated with an SOE’s responsiveness to the Party’s mandate, while the concentration level of nonstate owners and overseas listing are inversely related. These results show that ownership is important for the Party to exercise control over SOEs, but the Party also faces external constraints from other nonstate owners and overseas regulators and investors.
We study how past exposure to the transatlantic and Indian ocean slave trade has an impact on present attitude towards public health interventions such as vaccination programs in Sub-Saharan Africa. We elaborate on avenues for investigating causal relationship between cultural norms of mistrust inherited by mothers from different ethnic group and their children vaccination decision. We provide evidence through a rich sample of Demographic Health Survey (DHS) individual level data that ethnicity through its relationship with cultural trust is a salient causal channel. We find a negative and significant effect of slave trade on parent's likelihood to immunize their children against measles. We show that this negative effect goes both through direct vertical transmission of norms by parents and horizontal transmission from negative spillovers of living in a low trustworthy environment. There is evidence that both effects are relatively important. As for the magnitude of the effect, we find that past exposure to slave trade has a negative impact nearly offsetting the benefit from membership in the highest 20% income quantile. In addition, the associated estimates are higher than the negative effect of distance to health facility on the likelihood of immunization against measles or the positive impact of being born to an employed mother. Our calibration predicts an important decrease in measles incidence in the Hausa ethnic group form Northern Nigeria had they been a slave free group and thus inherited cooperative norms. Using different strategies, we argue that the observed linked is not picking-up the effect of pre-colonial ethnic group characteristics such as centralization or rigidity of social norms. Moreover, a falsification test with less trust sensitive disease such as malaria supports the argument that slave trade is impacting the vaccination decision through its effect on mistrust.
This study provides new evidence on how historic patterns of household formation shape present day social capital and institutions. Indeed, our study is the first to test three distinct features through which the prevalence of nuclear households favored bridging forms of social capital and impartial institutions today: (a) smaller household size in terms of the number of household members, (b) weaker loyalty bonds to extended kin, and (c) more egalitarian generational and gender relations within the household. The first part of our study covers 26 European countries that participated in the Life in Transition Survey in 2010. The second part uses historical census data for 429 sub-national regions in 5 West European and 21 East European countries. Both parts of the analyses find that more egalitarian generational and gender relations in historic family structures are clearly the decisive feature in favoring bridging forms of social capital and impartial institutions today, with an astoundingly powerful impact over large stretches of time. This result challenges the literature’s focus on household size as the most consequential characteristic of pre-industrial nuclear families.
How does the history of state-society relationship affect local development? Between the late 18-th century and the British colonial rule in 1886, the pre-colonial Burmese state appointed village headmen in the places where hereditary line of succession became extinct before British direct rule, which represents early centralization, while other places maintained hereditary village headmen before British direct rule, which represents late centralization. I construct three original datasets of pre-colonial revenue inquests, British colonial gazetteers, and geo-location of armed conflicts in Myanmar, and supplement my analysis with household survey data, geo-coded data of government schools, and nighttime satellite data, and find that the areas with relative proximity to historical towns and villages with early centralization tend to experience more contention with the colonial and the post colonial states, such as higher presence of coercive institutions and lower presence of welfare institutions that persist to the present day. In addition to focusing on a case that is underrepresented in the literature, the findings call for a further understanding of the role of colonial policy in post-colonial development by looking at its interaction with the pre-colonial history.
This paper investigates the conditions under which political capabilities can provide a source of competitive advantage for diversified firms. We argue and find that political capabilities attached to one business unit are more likely to provide a competitive advantage to another business unit within the same firm when both business units do not share any other strategic resource. Empirically, we alleviate endogeneity concerns by employing a matching strategy that compares sales growth of targets in successful acquisition versus growth rates of targets in unsuccessful acquisitions. We find empirical evidence consistent with our hypotheses. Political capabilities of the acquirer firm seem to help the sales growth of the target especially for unrelated acquisitions. Our results seem to be driven by the fact that political capabilities of the acquirer improve access to public procurement contracts for targets.
We develop a cultural evolution model that illuminates the evolution of productive organizations, such as partnerships, guilds and modern corporations. The basic insight provided by the model is that productive organizations evolved because they favored the difficult-to-propel process of cumulative culture by virtue of being exclusive and facilitating social learning. Productive organizations make social learning and culture useful to society, playing a fundamental role in the adaptive success of the human species. The model also illuminates issues regarding adaptation and rigidity, the locus of innovation, secrecy and the origins of specialization. We test the model using a sample of pre-modern societies drawn from the Ethnographic Atlas. The empirical analysis provides supporting evidence for our predictions.
Theory suggests that corporate diversification can create value by exploiting economies of scope or creating efficient internal capital markets. Because resources can normally be shared over a limited set of activities, and because internal capital markets suffer from information and incentive problems, most researcher argue that closely related diversification should outperform unrelated or conglomerate diversification. However, the empirical evidence is mixed. We argue that the same factors giving rise to scope economies—in particular, the ability to deploy resources across multiple products or activities—lead to divisional rent-seeking under conditions of asymmetric information. In other words, there is a “dark side of relatedness.” We provide an integrated, comparative-institutional explanation for diversification based on resource characteristics and transaction costs, showing how resource flexibility and information costs drive the benefits and costs of alternative organizational forms.
We study how institutional quality moderates the relationship between generalized trust and preferences for redistribution. It has been well established in the literature that generalized trust is conducive to greater support for redistribution because it reduces expectations of cheating and free-riding among others. Following Algan et al. (2016), we hypothesize that the effect of trust on preferences for redistribution is conditional on the quality of the institutional environment. Trusting individuals, that is, are hypothesized to be more supportive of redistribution in favor of target groups with a high propensity of free-riding (like the poor and the unemployed) if the institutional environment is more likely to detect and penalize free-riders. We test this hypothesis with data from the Life in Transition II survey that contains 38,000 respondents from 35 transition and developed countries. We find that the effect of individual trust on supporting redistribution in favor of the poor and the unemployed depends indeed on the quality of the formal institutions, like the country-level control of corruption and the rule of law. Trust and formal institutions are therefore complements with respect to their effect on preferences for redistribution. This relationship is not observed for groups conventionally thought of as unambiguously deserving or delineated with free-riding proof eligibility criteria, i.e. for the disabled and families with children. Less trusting people are also willing to contribute as long as they observe a high level of neediness in their direct environment, implying that the observed level of neediness and the level of trust are substitutes in the decision to contribute.
This paper investigates econometrically the relationship between corruption and legislative complexity, and their impact on growth rate, welfare and distribution of the per capita income. We perform econometric analysis using new indicators and index of legislative complexity, built in a way that makes them internationally comparable. In the data set sixty-seven countries are considered, for a period of twenty-one years from 1995 to 2015. To estimate the effects of legislative complexity and political corruption on the growth rate of per capita income, OLS and 2SLS regressions are provided. The results of the econometric analysis support the hypothesis that legislative complexity is a constraint to growth, and that in countries with a long history of liberal democracy legislative complexity determines an income redistribution to the detriment of the poorer social classes.
Economists and legal scholars have long been interested in the efficiency of common law. A shortcoming of existing studies in this literature is that they ignore the role of judges in reviewing legislative enactments. Judicial review ties the efficiency of common law to the efficiency of the statutes reviewed. If judges defer to inefficient statutes, the common law will then reflect those inefficiencies. To investigate the efficiency of judicial review, the paper examines 496 judicial rulings of occupational licensing statutes in federal, state, and territorial courts during the period 1885 to 1911. Evidence from this analysis suggests that judicial deference has evolved over time, from efficiency-supporting review during the Progressive Era to inefficient deference currently.
Common property regimes have long been considered inefficient and short lived, as they encourage high-productivity individuals to leave and shirking among those who stay. In contrast, kibbutzim -- voluntary common property settlements in Israel -- have lasted almost for a century. Recently, about 75% of kibbutzim abandoned the equal-sharing rule and paid differential salaries to members, based on their contributions. To explain the long persistence of the kibbutzim, as well as the recent kibbutz privatization, I develop a model that highlights the public defense provided by common property regimes. The model predicts that the privatization of common property regimes can be attributed to the decrease of external threats. To test this prediction, I construct a kibbutzim-level panel data set that contains the terrorist attacks near each kibbutz and the institutional status (i.e. preserving the equal-sharing rule or not) of each kibbutz in the years from 1986 to 2014. The empirical results show that an increase in the number of Israeli deaths near a kibbutz significantly decreases the probability that the kibbutz shift away from equal sharing.
This study tackles opportunism in franchise chains through a multilateral stakeholder perspective, thus relaxing the traditional dyadic franchisor-franchisee perspective assumption. By employing the stakeholder salience framework, we argue that incorporating a stakeholder perspective in the franchisor’s decision making can increase relationship efficiency by mitigating franchisee opportunistic behavior. Specifically, the more the franchisor pursues a stakeholder orientation, the more support it provides to franchisees and the greater the openness of communication is encouraged between them, both resulting in higher relationship efficiency, due to less franchisee opportunism. Through structural equation modeling using data from four European countries, our empirical results provide evidence for our projections. Overall, this study offers new insights on the efficiency of relationships in franchise networks by applying a multilateral stakeholder perspective. Keywords: Franchisee opportunistic behavior, stakeholder salience, relationship efficiency, franchising
Due to high mobility of water and over-segmentation of its sector, effective engagement of multiple stakeholders is crucial for adaptive water governance, particularly in countries facing water scarcity. The main objective of this paper is to enhance the potential contribution of stakeholder analysis to an effective stakeholder engagement by considering novel factors like stakeholders capacity for change, distinct formal and informal relationships, and perception of stakeholders. Our findings are based on a case study of the Zayandeh-Rud river basin (in central Iran) where suffers from growing socio-economic and environmental consequences of water scarcity. In this study we used a qualitative research design by conducting series of interviews, focus group discussions, workshops, and a questionnaire survey (N=156). Relying on common understanding on stakeholder engagement in water governance, the research design has been formed jointly, stakeholders have been identified and categorized based on their level of power, interest and capacity for change, and finally mapped by considering the type and degree of inter-relations using Social Network Analysis tool. An elaborated stakeholder map and social network proved to provide valuable findings for decision makers to understand: how roles and responsibilities are shared, how they interact, and how they can get engaged effectively? As an outcome, an adaptive process of Participatory Stakeholder Analysis with respective tasks has been introduced for formulation of engagement strategies. Our analysis extends the literatures on institutional change, and informs the debate over effective engagement process toward adaptive governance of resources.
Criminal organizations make large profits misappropriating public funds, causing an economic loss for the state and the strengthening of criminal groups. This paper evaluates a policy aimed at fighting this phenomenon and the displacement effects the policy caused. In 2013, the Italian government enforced a law screening mafia-related firms out of the application for European subsidies when applying for more than 150,000 Euros. We exploit this time-varying discontinuity to identify firms self-selecting below the threshold after the law was approved. We observe a large jump in firms applying for just below 150,000 Euros after 2013. Firms sorting are more likely to come from mafia-affected cities, display worse performances, operate in typical mafia-affected sectors and have balance sheet indicators suggesting potential for money laundering. The jump we identify corresponds to 3.8% of all subsidies assigned in our sample. Our findings shed light on the extent to which mafia-connected firms misappropriate public funds and on the effectiveness of screening policies applied discontinuously when mafias behave strategically.
Millions of people work, live, and travel in high-risk countries; very few are kidnapped and, of those that are, almost all come home safely - how can this be? Abducting people is relatively easy but how much is your hostage worth; how do you negotiate a significant ransom; and, most of all, how do you conclude the deal without being caught? Kidnap is not the violent, chaotic, and ungovernable crime that it might appear. In fact it is sufficiently predictable and orderly to be insurable. This book shows how the powerful private governance system created by Lloyd’s special risk insurers takes control in transnational hostage situations to safely and cheaply retrieve kidnap victims. Based on extensive interviews with those who deal with kidnapping worldwide – insurers, security consultants, victims’ employers and families, and professional negotiators on both sides - plus a full transcript of a pirate ransom negotiation, this is a compelling account of a hidden world.
Successful state-building after a long period of de facto dominance of non-state actors relies on the extent to which local populations trust the state institutions and reduce collaboration with illegal armed groups. In the last decade, the Colombian government and the international community have invested hundreds of million of dollars in an effort to consolidate state capacity in areas formerly controlled by illegal armed groups after a five-decade long internal conflict. We evaluate the impact of such efforts on the engagement of local communities in activities such as collaboration with non-state actors and growing illegal crops. Yet these behaviors are difficult to measure directly. To that end, we administer two list experiments to a sample of over 20,000 households in the municipalities that have received consolidation investments, as well as in a sample of matched-control municipalities. Our findings indicate that the overall level of engagement in illegal activities has decreased during the intervention period, but not differentially so in treated municipalities. However, this result is more nuanced when heterogeneous effects are explored.
Finding the right company name is a challenging decision with major consequences for firm prospects. Drawing on strategic distinctiveness and legitimacy theories, we study the implications of “unfamiliar” names (i.e. foreign sounding and family-unrelated) for family firm profitability. Our empirical analysis shows that unfamiliar names increase profitability. This result is not due to differences in R&D, industry specialization or geographic scope, and holds using both matching and instrumental variable approaches. Consistent with the idea that unfamiliar names endow the business with greater visibility and recognition in the marketplace, we show that the benefits of “unfamiliar names” are larger for firms in crowded product classes and firms smaller than industry peers. Moreover, we show that cultural values that prioritize the local community and the family dampen the benefit of unfamiliar names, which may raise illegitimacy concerns in the eyes of external stakeholders.
Does education promote support for liberal economic policies? Despite the wide range in attitudes exhibited in international surveys by respondents towards markets and the desirability of state regulation thereof, we document in a large cross-section of countries that – in almost all cases – those with higher educational attainment are more market liberal and less sympathetic to economic regulation than those who have less formal education. This is true both in countries with high support for markets as well as those with high distrust of markets and strong support for government regulation. The correlations are consistent for a wide range of questions regarding differing attitudes towards a variety of regulatory policies. More important, we find very little evidence that the content of education seems to have a big impact on this effect. Most notably, when considering data from Russia, we observe that whether we confine ourselves to older people who were entirely educated in the Soviet period or compare the results to a sample from the post-Soviet era, we consistently find that those with more education are more likely to be favorable towards markets and relatively less supportive of market regulation. This is remarkable as Russia is among the least market liberal of countries in the sample.
We study the interplay between two cultural traits, one of which is apolitical social capital, which powers up grassroots collective action, and the other – civic culture, which reflects responsibility for social welfare and prompts political participation. We contrast two types of collective action, one of which is civic and the other is not, and present a theory indicating that civic culture augments apolitical social capital in the first type, and impedes it in the second. These predictions are tested in the contemporary urban setting, where in a civic collective action tenants of an apartment building collectively manage funds designated for the building upkeep, and in an un-civic one, build fences and gates around their building. We use a unique database of nearly 30,000 Moscow apartment buildings to demonstrate that apolitical social capital and civic culture are cultural traits that reinforce (complement) each other in the case of a civic collective action, and counteract each other, when a contemplated collective action is un-civic.
We analyze persuasion in a model, in which each receiver (of many) might buy a direct access to the sender's signal or to rely on her network connections to get the same information. For the sender, a more biased signal increases the impact per subscriber (direct receiver), yet diminishes the willingness of agents to become subscribers. Contrary to the naive intuition, the optimal propaganda might target peripheral, rather than centrally located agents, and is at its maximum level when the probability that information flows between agents is either zero, or nearly one, but not in-between. The density of the network has a non-monotonic effect on the optimal level of propaganda as well.
We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the two-way interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm.
Contrary to the large number of studies that examine the role of political leaders in economic growth and international trade, less attention has been paid to their impact on domestic trade, particularly in places where general elections are absent. This paper aims to fill in this gap by focusing on how the career incentives and social networks of local leaders influence interregional trade in China. Results using data on interregional railway cargo from 2004 to 2015 contrast the common understanding that career incentives mobilize the local leaders to implement policies beneficial to local economic growth. Rather, promotion tournament between local leaders actually becomes a new type of trade cost and decreases trade between competitors. However, social networks among local leaders instead help to reduce trade costs and increase the trade volumes between connected regions. This effect is induced by both higher social trust and political in-group favoritism. Furthermore, study of the content of articles published in government-owned newspapers reveals that connection and competition between local leaders also affect the number of articles on interregional economic activities, providing direct evidence of the efforts of local leaders to push the interregional economic cooperation with different regions. Finally, we find that local leaders with greater career concerns are more likely to put into place import restrictions to help local firms grow.
Increasingly, decentralization has proven to be a policy fix selected by developing countries whose new governments represent a significant regime change. This analysis adds to the literature on decentralization by identifying the extent to which factors that lead to divergent policy preferences result in greater definition of decentralization in a given constitution. The principle of subsidiarity suggests that the more localities and regions vary from each other, either in terms of population, language, religion, or resource endowments, the more likely these populations’ policy preferences differ. If this implication holds, one would expect the benefits of subsidiarity, and hence, decentralization to increase in such situations. As a result, one would expect pressures for decentralization on constitutional drafters to increase with a country’s size, population, terrain ruggedness, number of ethnicities and religions, and regional variance in wealth. I test several aspects of this hypothesis, based upon initial data from 48 Muslim countries’ constitutions. Beyond the noteworthy conclusion that population is more important than territorial size in determining constitutional definition of subnational government, the results also suggest linguistic divides play an important role in determining the heterogeneity of policy preferences within a given nation, more so than simple ethnic diversity.
To explore the relationship between federalism and political conflict, we develop a model of two-level governance with interstate preference heterogeneity and cross-state externalities. States with high demand for public spending or regulation are better positioned to adjust state-level policies to compensate for perceived inadequacies in national policy than states with low demand. Concurrently, the ability of states to free-ride on other states’ policies disproportionally reduces low-demanding states’ preference for national policy solutions. We show that, given these asymmetries, (1) polarization of the representatives from those states in a national legislature may be higher in federal than unitary systems, even holding policy demand constant; and (2) the incentives for officials from low- and high-demand states to engage in unproductive conflict are contingent on the status quo national level of policy, and may be higher under federalism than unitary governance – contrary to the common understanding of federalism as a conflict-mitigating institutional form. The model helps account for a number of empirical regularities in U.S. politics and policymaking.
In 594 BCE the Athenian statesman Solon defused a grave social crisis by introducing wide-ranging constitutional, political and economic reforms which granted various rights to a nascent ‘middle class’ and reduced the power of the wealthy birth aristocracy. Solon’s reforms included a law which perhaps counter-intuitively banned citizens from staying neutral in cases of civil conflict. After reviewing aspects of the law against neutrality debated by historians, the present paper employs the methodology of the economics of conflict to investigate the implications of the law for the stability of the constitutional order initiated by Solon. We examine a stylised model of three social classes, Rich, Middle and Poor, where the former two compete for control of the government, and the Poor may decide to stay neutral or side with either the Middle or the Rich. By solving the model we identify conditions for the Rich to accept the Solonian order or reject it and mount a coup.
We empirically assess the effect of historical U.S. slavery on the African American family structure. The latter is proxied by the likelihood that a household is headed by a single woman. Our hypothesis is that the black family structure is more likely to emerge in association with the experience of slavery in sugarcane plantations. Indeed, across the Americas, sugarcane planting has been linked with extreme demographic outcomes within the slave population - involving a prevalence of men over women, low fertility, and high mortality - that may have impeded the formation of stable families adhering to the nuclear model. We test our hypotheses on U.S. Census data covering the period 1900-1940. By exploiting the exogenous variation in suitability to crops, we establish that higher sugar suitability is associated with a higher likelihood of a single female headship. We complement OLS estimates with a matching estimator and a RDD. The effect we uncover starts fading in 1930 with the Great Migration, and vanishes by 2000. By constructing a matched linked dataset, we also assess intergenerational and geographical persistence and, by merging data on Louisiana slaves' ethnic origin with ethnographic data, we exclude an alternative explanation based of African cultural traditions.
This paper establishes that, under the same institutional setting, divergent local economic incentives determine divergent patterns in institutional, political and cultural environment. We first show how changes in agricultural incentives shaped the distribution of slave labor in the US South. To do so we propose a theory that links the comparative advantage in the production of different crops to the efficient use of slave labor and free labor. We then use data on land suitability for different crops and changes in the quantity and type of available land, due to the westward expansion, to predict the evolution of the counties’ relative advantage in the production of specific crops. We finally show that changes in economic incentives affected agricultural production decisions and ultimately determined the relocation of slaves across the US South. In the second part of the paper we turn to the exploration of the cultural and political implications of these economic shocks. We use Southern Newspapers and predict pattern of slave manumission to show that economic incentives affected the moral attitudes towards slavery. Finally we examine congressman roll call behavior, presidential and gubernatorial election to study the effects of economic changes on political ideology and political support for the institution of slavery.