2011 Chicago Workshop: Abstracts

MAY 15–21, 2011


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Digital Book Adoption and the Publishing Industry:
A Cross-Country Institutional Analysis
Lemilson José Cavalcanti de ALMEIDA
University of São Paulo

What explains different rates for adoption of digital books across countries? The emergence of the digital book or e-Book - a set of recently introduced technologies for production and distribution of digital products and services - is poised to reconfigure book publishing in a few years. Theoretical literature points out that in moments of formation or transformation of markets, agents become self-aware of opportunities and uncertainties and engage in new forms of interaction to produce new institutional and organizational arrangements.

Stylized facts suggest that as e-Books spread across countries, economic agents are establishing new rules and standards to govern production, distribution, and sales. Also, in order to expand domestic markets, it is becoming necessary to increase language-specific content offering, essential to increase end-user adoption. As a result, agents will need to cope with choosing the technology for production and defining their organizational form in order to enforce and protect their property rights across different institutional environments.

A relevant theoretical innovation of Transaction Cost Economics is the proposition that organizational forms can be explained based on the attributes of the transactions conducted by them.  Therefore organizations are not an exogenous element introduced in the economic system but rather the result of a rational choice or an evolutionary process. However, as emphasized in economic sociology, some choices are limited by restrictions or determinants defined by formal aspects (private regulations and laws) and informal frameworks (norms and social values). These dimensions often hinder the unrestricted search for efficiency, creating limited choices, or choices restrained by external institutional parameters.

Based on Transaction Cost Economics, this research examines how the technological shift changes the institutional environment and influences the governance mode of property rights and the strategy of firms, which in turn, affects the end-user adoption. This study will frame and compare industry and market figures, institutional parameters, and existing organizational forms drawing inferences from cross-country data for Brazil, USA, United Kingdom, France, Germany, and Japan. Hypothetical property right mechanisms will be embedded with the observed organizational form as dependent variable. A model of structural equations regressions will test a causality hypothesis on adoption rate. This research contributes to the study of value creation and appropriation, positioned at the interface among the domains of property rights economics, strategy envisioning and institutional change on new institutional economics.

The Power in the Executive Branch:
Presidents and Ministers in the Brazilian Lawmaking Process, 1988-2006
Federal University of Pernambuco

What influences the president's choice between making legislation in the Civil House and delegating it to the ministers? The Brazilian political system is currently defined as coalition presidentialism. That means that, despite having been elected and having a mandate independent from the legislative branch, the president has to share the government, including other parties in the cabinet to gather support for his legislative agenda. Also, due to the strength of the executive, this branch appears as the main de facto legislator in the country. In that sense, what happens before bills are sent to the legislature, i.e., what are the dynamics of construction of such projects within the executive branch?  What is the relationship between the president and the ministers in the lawmaking production in the executive branch?  Does the president concentrate power or delegate decision-making authority to the ministers?

To answer these questions, I propose a research design that builds on the president's choice to delegate powers to his ministers or not. With a transaction cost approach, I seek to identify why the president centralizes the decision power and makes the project in the Civil House in some cases (his personal assistance), while in others he delegates to the ministers. It can be seen heuristically as a "make-or-buy" question. The bills can be made by the President himself and his personal staff, or he can "buy" them from the ministry. The president has the power to decide which of these options will be used. This decision will be made to maximize the president's utility and there are costs associated with both options.

The hypotheses tested here are: 1) as the ideological distance between the president and the minister rises, the probability of centralization increases because the information produced by the minister is no longer reliable; 2) more complex bills are less likely to be centralized, because the ministers are specialized and have more expertise in the specific areas; and 3) bills more relevant to the president's legislative agenda are more likely to be centralized.

To test these hypotheses I analyze the period from 1988, the establishment of the Brazilian democratic constitution, until 2006, the end of Lula's first mandate. This time period provides important variation, including different governments and presidents.

Endogenous Property Rights and the Distribution of Human Capital:
Transition to Intra-Elite Rule of Law
Biniam Egu BEDASSO
Maastricht University

The central focus of this research project is the transitional dynamics of endogenous institutional change in a typical developing country with entrenched elite domination. By extending the historical social orders theory in North, Wallis and Weingast (Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge University Press, 2009) to include a heterogeneous elite framework, I focus on intra-elite rule of law to define the endogenous transition to stronger institutions. In addition to extending the original theory, an attempt is made to formalize one of the potential paths of transition to intra elite rule of law. Accordingly, the current paper tries to analyze the impact of the distribution of human capital on the emergence of the rule of law. The rule of law is decomposed along political and economic lines into democratization and property rights protection. A simple model of endogenous property rights is formulated explaining the emergence of a non-predatory state as a function of the distribution of productive human capital among political and economic elites. The model exploits the complementarities between physical and human capital to explain the incentive compatible commitment of political elites to respect property rights. Intra-elite democracy is shown to be emerging as a commitment device for the ex-post protection of property rights under certain conditions. The model also derives a hybrid regime where partially institutionalized property rights coexist with non-democracy. The model predicts that, generally, a balanced distribution of productive human capital among the political and economic elites creates conducive environment for the protection of property rights. The existence of an exit option for human capital to flee the formal sector (or that particular jurisdiction) is shown to undermine the transition to secured property rights. Much of the empirical evidence supporting the model is expected to come from the analytic narrative case study on Kenya and Ethiopia (forthcoming).

Businessmen Murdered: When the State Does Not Protect
University of Wisconsin - Madison

Under what conditions does violent competition become widespread among economic elites?

The state and organized crime sometimes act as substitutes. If the state withdraws from a market or institutes regulations that are too costly for a business to abide, businesses may need to acquire protection and enforcement privately. Organized crime often steps in in order to perform these functions. Under what conditions may such substitution lead to violence among commercial elites?

Businesspeople strive to make profit from their enterprises. In order to enter in deals they often have to rely on third party enforcement. At times such enforcement is achieved through reputational mechanisms and does not involve violence or the threat of it. Yet, the bigger and the more profitable a business is the more likely it is to obtain, voluntarily or not, protection from an armed actor (Dixit 2004).

Violence often erupts when organized criminal groups are among the actors in the market for protection, but it does not mean that the presence of organized crime automatically leads to violence. Violent outcomes are likely to emerge as a result of competition for territory and control among businesses and their armed, and possibly criminal, allies or subdivisions that happens when the state fails or chooses not to suppress that competition. The role of the state institutions in this process seems to be little understood.

Law enforcement agencies choose not to fight against violent business practices when the need to suppress violence conflicts with the desire to secure political allies. In Russia, for instance, violence tends to emerge when it is politically costly for the federal government to commit to keeping certain regional administrations in power. In such situation, the regional government, in turn, chooses to not commit to fighting violent business practices and tries to buy the silence of those federal bureaucrats responsible for punishing it for inaction. This situation persists until it is too costly for the federal government to ignore abuses of power at the regional level.

Does Shareholders' Control Improve Banks' Performance?  A Russian Perspective
National Research University – Higher School of Economics
Kirill Pogorelskiy
California Institute of Technology

This paper investigates whether shareholders' control has a positive impact on performance of commercial banks. To avoid agency conflicts between managers and shareholders, most large banks in developed countries nowadays try separating control over daily business operations from ownership. They introduce several internal control mechanisms such as increasing the role and proportion of outsiders on the board of directors, distinguishing the position of chairman and CEO, supporting higher quality of information disclosure by appointing reputable external auditors and rating agencies, as well as others.  The largest banks in Russia attempt to follow the best practices of corporate governance, notwithstanding the unique features of the banking sector that have been due to legacy transition economy, ownership structure, and control patterns.

Although there are a few established practices of evaluating banks' performance, this is hardly the case for assessing the effectiveness of the existing mechanisms of ownership monitoring. In this paper we aim at providing a partial answer to this question, at least for Russian banks. In particular, we focus on aggregate measures of decision-making effectiveness in shareholders' committees, like the Coleman index of power. In addition, we analyze the role of internal board control and disclosure monitoring mechanisms.

The performance indicators are based on financial reports, e.g., the cost to income ratio and profitability indices. This paper uses data on pre and post financial crisis experience of the largest Russian banks.

We test the hypothesis that high effectiveness of shareholders' decision-making in committees, and their voting power, together with other important factors such as foreign ownership, asset and liability structure, moderate size of the board, and information sharing as traced by rating agencies and internal auditors, improve the financial performance of Russian banks. Our preliminary results indicate a certain degree of support for this view.

Between Agriculture and Industry: Can Public Choice Explain
the Classification Controversy Surrounding Biofuels?
José Guilherme Moreno CAIADO
University of Hamburg

There is an intensive ongoing debate on how biofuels should be classified, whether as an agricultural or an industrial product. This definition is important because it will affect, on the one hand, States´ sovereignty in areas such as tariffs, subsidies, and health standards, and on the other, the transaction costs that might boost the international trade in ethanol and biodiesel. This article intends to discuss some of the implications of the current classification institutional arrangement on States´ behavior. From the current biofuel controversy, it can be implied that the limits between agriculture and industry can be rather unclear, leading to technical difficulties on the classification of certain products. However, as such technical questions can be dealt with by the World Customs Organization (WCO), its inaction seems to suggest that other interests might be shaping this controversy.

One possible explanation is that classification is opportunistically used as a tool to deviate from the World Trade Organization (WTO) principles. As the behavior of States is shaped by domestic interest groups, this article intends to use the New Institutional Economics (NIE) approach, focusing on issues of public choice, to discuss whether it could explain the biofuel´s controversy. For that, we intend to develop on the costs that WTO rules impose on each classificatory category, as a means to understand the correlated incentives that domestic interest groups have to lobby for one category over the other. We believe that there is a strong correlation between the behavior of States and powerful domestic interest groups. If this can be demonstrated, we will briefly discuss how the current arrangement deals with opportunistic behavior, and whether the existence of two dispute settlement mechanisms, one at the WCO and one at the WTO, was an adequate outcome of international negotiations. We expect the results to assist policy makers and private agents to take better-informed decisions on issues of classifications and international disputes, and also to assist academics in analyzing further classification controversies with the analytical framework here developed.

Guanxi Retribution: How the Chinese Solved Opportunism in Contracts
in Hispanic Philippines
University of the Philippines – Diliman

How did Chinese merchants in the Philippines remedy the problem of opportunism in contracts amidst weak and predatory state enforcement during the Spanish period in the Philippines?

 When state or third-party enforcement of property rights is weak, or when the enforcer is predatory, the risk of non-viability of contracts rises, and market exchange is affected. This historical study of using Guanxi as an alternative enforcement mechanism affects the debate by providing an insight into innovative solutions to enforcement weakness, caveats as to the use of informal sanctions, and the need for the development of formal institutions.

Using a model based on a principal-agent contract with poor enforcement and no asymmetric information, with 16th-19th century documentary evidence, this paper introduces Guanxi or personalistic ties as the second-party enforcement remedy of the Chinese for opportunism in contracts. These personalistic ties based on the Confucian ethos operationalized informal retribution by the principal against deviant agent behavior.

Evidence from historical accounts confirms the model where inadequate state retribution of property rights violations is augmented by the use of informal sanctions, resulting in tenable principal-agent relations. The evidence shows that Guanxi sanctions were in use among Chinese merchants; Chinese principals hired Chinese agents - a necessary condition for particularistic relations to produce sanctions; and lastly, agents were scattered all over the archipelago, making a merchandise distribution system possible. It is noteworthy that in the 19th century, this distribution system underpinned by efficient principal-agent relations was crucial in securing large-scale wholesale and retail trade for the Chinese.

Transaction and Measurement Cost in the Governance Structure Chosen between Supermarkets and Organic and Conventional Producers in Brazil and the USA
Christiano França da CUNHA and Maria Sylvia Macchione Saes
University of São Paulo

The demand for organic products has been increasing in the last years and so are sales, especially in supermarkets, the most important marketing channel for these products. The main objective of this paper, using the New Institutional Economics, is to understand the criteria for the choice of governance structures in two different institutional environments, by comprehending the contractual relationship between supermarkets and farmers (organic and conventional) in two countries (Brazil and the USA).

The 128 interviews were analyzed by creating some indexes and then using ordinary least square (OLS). The results showed that the main difference was that the criteria for choosing among the governance structures differ depending on the institutional environment. In Brazil, the governance was better explained by variables related to asset specificity (governance cost), whereas in the U.S.A were the variables of measurement cost that best explained the arrangements between supermarkets and suppliers. Such differences are due to the more advanced development of standardization of organic products in the USA. The main similarity was that in both countries there has been a convergence of governance structure between supermarkets and farmers, regardless of the type of production (organic or conventional). So the supermarket relates similarly to conventional and organic producers, mainly due to the advent of certification. It is possible to conclude, in the end of this work, that there are empirical evidences, demonstrated through the creation of these indexes that the institutional environment matters in the choice criteria of the governance structure to be used.

Informal Networks and Corruption across Countries
Universidad Adolfo Ibañez

The anthropological literature has suggested that corruption is a cultural phenomenon that must be understood in the social context in which it happens. For instance, in Brazil, the jeitinho is a sort of informal norm widely used by its population to get access to all kind of help from their social ties. A similar role play other social norms around the world like the guanxi in China, the raccomandazione in Italy, the chtara in Algeria, the yonjul in South Korea, or the pituto in Chile. These norms are efficient institutions in many situations, but when they are used to get access to public services may involve corruption. For this reason it is important to understand how and when the presence of these kinds of informal institutions jeopardizes the development of those formal ones required to exert economic development. Thus, the anthropological insight invites to understand corruption as a coordination problem (what rule -formal or informal- is working and when) rather than as a delegation problem (when "the" rule is broken).

In this research, I propose to factor in network theory to bring that anthropological insight within the rational choice modeling of corruption. For that purpose, instead of focusing the attention on the informational gap between a public officer (the agent) and a governing authority (his principal), the research analyzes the coordination problem between a bureaucrat and alternative users of the services under his control. The key point being that those users are identical in all regards but in their relative network position with respect to that bureaucrat.

Combining tools of graph and game theory I created a model in which: (a) a bureaucrat follow formal rules with some users and informal ones with others (b) bribery is made when the user lacks good connections and, (c) non-mobile societies are more akin to the spread of corruption. Finally, using the second and third wave of the Afrobarometer survey, I tested one implication of the model showing that better-connected individuals have greater changes to participate in corruption. Currently, I am studying hierarchical models to test variations across countries


Bureaucracy Intermediaries in Developing Countries
University of Namur

This project aims at a better understanding of bureaucracy intermediaries, common in developing countries.

Bureaucracy intermediaries help individuals and firms in contacts with the government bureaucracy. Often, intermediaries offer a "one-stop shop" solution for an individual or firm that needs a permit, license, or certificate. Individuals and firms can save time when using intermediaries. Through their contacts in the government bureaucracy, however, intermediaries may also help "undeserving" individuals or firms obtain licenses or permits that they are not entitled to, facilitating rule-breaking and being a "vehicle of corruption".

The goal is to increase understanding of what functions the intermediaries perform, if they are socially beneficial or harmful, and understanding better how corruption occurs.

1. Descriptive statistics (ongoing)

I use three household surveys (POF 1995, 2002, 2008) to characterize bureaucracy intermediary ("despachante") usage in Brazil. In total, 435.000 individuals have been surveyed, and a module of the survey asks the respondent about use of services such as accountants and intermediaries. This paper is, to the best of my knowledge, the first study characterizing individuals' use of bureaucracy intermediaries from a nationally representative sample.

2. Do despachantes primarily help individuals and firms save time or do they facilitate rule-breaking? (starting)

A bureaucracy simplification program, PoupaTempo, is implemented in São Paulo, Brazil. Through geographical co-location of government authorities, the time costs of going through bureaucratic procedures diminish. Legislation per se does not change. The regular bureaucracy still exists. With a Difference-in-Difference approach, 1995/2002 or 2002/2008 POFs are used. Changes in areas where PoupaTempo was introduced are compared to control areas. If intermediaries are used to save time, a PoupaTempo introduction should result in less usage. If they are a vehicle of corruption to bend rules, a PoupaTempo introduction should not matter much for usage. A model for theoretical predictions to be tested is developed.

3. Data collection (future)

We will conduct a data collection project on the use of intermediaries in Brazil, with detailed questions about regular bureaucracy, despachante and PoupaTempo usage, times and costs. The aim is to further study the intermediary function and also access to the bureaucracy. The survey will draw upon work done by the Coase institute and other relevant empirical studies.

Property Rights, Land Tenure and Insurgency: Evidence from Peru
New York University

This paper explores how different property arrangements affect armed conflict. By property arrangements is meant the different institutional forms of land possession in rural areas.  For instance, peasants working the land for a wage, or those who rent the land in exchange for an annual sum face very different productive incentives than landholders cultivating their own land. According to extant sociological literature, these types of institutions directly affect the likelihood of conflict by mediating the incentives of peasants to be recruited by armed groups (e.g. guerrilla, paramilitary) or not.

Specifically, I test whether income shocks influence conflict contingent on the type of property institutions that rural laborers face. That is, peasants working for a wage lack the freedom to switch to subsistence crop farming during agricultural crises, thus lowering their opportunity costs to join rebel groups. In contrast, landholders are able to handle such crises with more ease, thus making them less likely to be recruited in conflict scenarios. Therefore, negative income shock reduces disproportionately more the opportunity cost of sharecroppers and rural wage laborers in contrast to that of landholders. If this is true, then radical armed groups would recruit more from zones with rural wage laborers and sharecroppers in comparison to peasant landholders, when income falls.

The paper uses an instrumental variable (IV) approach to causally estimate the effect of property rights on conflict. To avoid potential endogeneity concerns I exploit the exogenous variation in the international prices of Peruvian major export crops to capture truly exogenous income variations.  I use an original district level dataset on violence from the civil war years in Peru (1980-2000). The dataset contains agricultural census measures of property rights and levels of export crop production per district.  In addition, I use household surveys to test the specific mechanism through which property rights affect conflict.  This empirical strategy provides micro-estimations of the differential effect of income shocks on conflict contingent on the type of property institutional arrangements prevailing in every Peruvian district.

Analysis of the Sustainability of China's Cotton from an Ecological Modernization Perspective
Shuqin JIN
Wageningen University

During the past couple of seasons, cotton prices have created several records for recent years. Meanwhile, farmers' enthusiasm for growing cotton also grows. Cotton is one of the most polluting crops. Its highly chemical dependent characteristics cause various environmental problems, which are contradict with sustainable development.

With an ecological modernization point of view, we will analyze the sustainability of China's cotton at two levels: the national and household levels, which can also be policy and practice levels. The main research questions then are stated as (1) whether ecological rationality was integrated by government and farmers; (2) which factors have influenced the sustainability of cotton planting both at government level and at household level.

Analyses reveal that the Chinese government has paid much attention to technological innovation, which has indeed contributed a lot to improving cotton productivity. And environmental benefits have also been attained at the early stage of technology innovation as a kind of by-product. However, the single technological innovation cannot lead to a way of ecological modernization without integration of ecological rationality. New environmental problems emerged after the old problems were solved.

The household survey shows that farmers' environmental awareness is rather low. Even if in some case farmers know that chemical overuse will cause environmental problems, they still use more than necessary. On average, the small holders use 434.88 kg chemical fertilizers per hectare, and the large holders use 337.8 kg/ha. However, farmers can get little technical support from the government. No significant differences exist across small and large holders, nor across different locations. Price differences only exist at the time farmers sold cotton, mainly because of the flux of price in the last season.

The recommendations then come as (1) the government should pay attention to technical supports, not only for cotton seeds, but also for field management; (2) subsidy for chemical materials should be abolished; instead, this amount can be spent on environmentally friendly practices.

Property Rights Formalization: The Mystery of "Dacha Amnesty"
National Research University – Higher School of Economics

De Soto in his famous books argues that prohibitive costs of obtaining property titles in many developing countries hinder their development and deprive de facto asset owners of full benefits of secured and duly recognized property rights. Excessive entry barriers, while entailing high social costs, could be nonetheless serving the needs of bureaucracy or other special interests that benefit from weakness of property rights in the general population.

Russia is a case in point: millions of Russians de facto possess small plots of suburban land and dwellings, known as dachas, but have secured property titles only for small number of those. A reform known as the "dacha amnesty" initiated in mid-2000s was expected to radically lower the costs of obtaining property deeds to dacha owners. This reform however failed to achieve the desired results: only several percent of dacha owners have taken advantage of the new regime.

The purpose of our study is to explain such failure and identify obstacles to the "dacha amnesty". We argue that the "dacha amnesty" faltered due to several possible factors. One is a lack of support to the reform from the government, which does not consider establishing an efficient property rights regime accessible for the general population as a policy priority. Another is the resistance to reform from special interests, including local bureaucracy that benefits from excessive entry barriers, and from large developers that take advantage of insecurity or real estate ownership in the areas of their prospective operations. The third possible reason is that owners do not sufficiently value secured property titles, due to either economic or psychological and cultural reasons. We study the relative significance and interplay of these factors to get a clear picture of obstacles to extending a sound property rights regime onto millions of Russian households.

Our research includes theoretical and empirical components; the empirical strategy provides for data collection in the suburbs of St. Petersburg, Russia's second largest city. Sources of data include surveys, in-depth interviews, consultations with real estate and legal experts, as well as land registry materials.

Intergovernmental Transfers: Tactical Redistribution, Political Bargaining and Vote Buying - Evidence from India
George Mason University

The recent spate of natural disasters has drawn focus on disaster mitigation, preparedness and relief efforts, especially in nations more vulnerable to such disasters. Intergovernmental transfers from the center to the state, meant to buttress state relief efforts are a common feat in federal societies. Rapidly increasing discretion as opposed to rules in determining the allocation and size of such transfers make political economy issues relevant.

In this paper, we study the political institutions in India, and attempt to show whether the incumbent in power at the Center is able to use 'Central disaster relief' spending as part of a tactical redistribution program, commonly labeled 'Pork Barrel', for political competition, in vying for voters' electoral support and coalition support from other political parties. The lack of any strict ideological basis for voter support, and multiplicity of political parties, representative of various social cleavages in India, provides strong political incentives for engaging in such redistribution. We create a model to establish the determinants of the size and allocation of discretionary intergovernmental transfers and test the model using panel data from India, for fifty years. We expect to find a strong support for our hypothesis.

Incentives Provided by the Patent System, Russian Style
Kazan Federal University

Does stimulating patenting benefit innovation? In the example of the Russian patent system one can see how a market for innovations fails in the presence of government support, given that the quality of patent expertise is low. Studying the patents granted in Russia, one can find numerous examples of patents that cover "technologies" that are incapable of being implemented, for example, chemical reactions that cannot be carried out, or that would cause massive destruction if implemented. What drives the patentees to spend their resources securing these patents? Innovative firms do not buy these fake patents, since they perform their own expertise in order to lessen production risks. But the government decides whether to finance innovative projects or not based on the number of patents and publications of the applicant. Due to the poor expertise of the Russian patent office, fake patents are issued not for the technology itself but to boost the CVs of researchers. To model this framework, we've constructed two markets. In the first market, there is a seller of a technology (the patentee), and the buyer (the government). The patentee has to decide whether to produce a high-quality patent with cost C1, or to produce a low-quality patent with cost C2, C2<C1. The government then provides grants G, based on the number of patents obtained by him. The government assumes all patented technologies to be of a high quality.

In the second market, there is the same seller and the same products – patents of low and high quality. The buyer in this market is an innovative firm that wants to obtain a new technology. The firm cannot ascertain the quality of each patent, but knows the average quality of patents in the market.

We show that awarding grants on the basis of number of patents results in the proliferation of low-quality patents. This, in turn, causes the problem of adverse selection in the firm-patentee market and drives high-quality patents out of both markets.

Fiscal Federalism and Tax Institutions in Colombia, 1863 - 1886
Jorge Tadeo Lozano University

What was the impact of liberal reforms on the fiscal and political performance of Colombia in the mid-nineteenth century? This is the main question of my research project.

In the mid-nineteenth century, Colombia went from a highly centralized government structure to a federation of states known as the United States of Colombia established in the Constitution of 1863. However, the first laws of decentralization were proclaimed since 1850 as a part of the liberal reforms intended to abolish many colonial institutions like state monopolies (vb. e.g. tobacco), the privileges of clergy and military, the old taxes and the structure of property rights inherited from the colonial era.

In this research I will examine the effects of the new fiscal institutions and other liberal reforms introduced in the mid-nineteenth century in Colombia. Specifically, I will present an analysis of the effects of fiscal federalism on the political and economic performances of the central government and the nine states created by the Constitution of 1863. I will provide some preliminary survey of the performance of tax income of each state, the relations between politics, civil wars, and tax institutions, and the sustainability of fiscal federal rule.

I will provide information about these questions and the fiscal, political, and economic situation of the states by using primary and secondary resources. In addition, new data will be used to assess the performance of the fiscal revenues and expenditures. The main primary source is the documents and reports of the Secretaries of the Treasury (Informes de los Secretarios de Hacienda) of each state. These reports show their points of view about the fiscal institutions and summarize the impact of wars and natural disasters; the official fiscal data will be shown as well. 

Also, I will take into consideration some key definitions and theoretical frameworks of authors like Oates (1972), Tiebout, Weingast (1995), and Rodden (2008) and previous relevant literature about the public finance of Colombia in the mid-nineteenth century.

The Political Effects of the Resource Curse:
Evidence from a Natural Experiment in Peru
University of California - Berkeley

The abundance of natural resource has been usually linked to bad economic and political performance. Despite the significant theoretical work in this area, our knowledge about this phenomenon remains limited from an empirical point of view. The lack of credible econometric analysis for establishing causality in this regard is not unexpected given the complexity of this topic as well as the absence of good data, making this task hard to pursue. This research project tries to fill this gap. Specifically, I will analyze how the increase of rents linked to the exploitation of natural resources affects political competition and electoral outcomes in Peru. Then, I will explore alternative mechanisms to explain the reduced-form results based on a simple model of electoral competition.

In order to claim causality, one would need to use an exogenous source of variation in rents linked to natural resources to explore the effect of these rents on a set of political outcomes. Particularly, I will exploit a set of fiscal rules about the allocation of a fraction of the taxes paid by mining companies to the districts where these resources are extracted along with the extraordinary increase in the prices of the most important minerals produced by the country over the past years. This is the key element of my research design because allows me to take advantage of cross-sectional variation among local governments with and without access to these rents, and variation over time because of changes in prices of mineral resources. In this design, I will be able to estimate the causal effect of an increase of natural resource rents on political outcomes. This will represent an important progress over the previous literature that was unable of controlling for institutional and cultural characteristics since it was largely based on cross-country comparisons.

Tax Governance: The Design of Enforcement Institutions
Bar-Ilan University

The proposed research focuses on law enforcement institutions in their unique application to tax evasion. First, the research analyzes the political and social implications of the current model of tax evasion governance, using Game Theory; it empirically examines the model predictions; and lastly, it proposes superior institutional structures based on Mechanism design and organizational architecture Theories. Commonly, criminal investigation is followed by the prosecution's decision whether to file an indictment or forego criminal proceedings. Yet, usually, the 'text-book' criminal proceedings are different from the ones taking place in court rooms. The increasing burden on criminal court systems led to various cheaper (and probably less accurate) alternative practices that lead to court rulings – in particular, plea bargaining.

Interestingly, criminal proceedings in tax issues (e.g., tax evasion) allow for an additional decision making and bargaining stage to occur: the Settlement stage. The Settlement practice in criminal tax law is a common and useful law enforcement tool which precedes criminal proceedings in tax evasion cases, and may practically make them unnecessary. The Settlement practice states, that if certain conditions take place, a specified tax authority may stop and practically erase criminal proceedings against a tax evader, and impose a fine on him. Unlike Plea Bargaining, Settlement is possible at any stage of the criminal proceedings, even before indictment filing and during the investigation stage. Moreover, the Settlement game involves different players than those participating in trial and Plea Bargaining.

This unique pre-trial optional procedure raises various political concerns as well as social advantages, and hence offers an intriguing legal mechanism for investigation and redesign.

The research examines the strategic behavior of the relevant players – i.e., taxpayers, tax authorities, prosecution and courts – in a game theoretic framework, given the unique practice of Settlement in customary criminal proceedings spectrum. The purpose of the research is, first, to offer equilibrium predictions of such games in their unique structure. Second, designing both social and political superior enforcement institutions, based on a welfarist normative view. The research will utilize insights from Mechanism Design Theory and Organizational Architecture Models to construct welfare increasing institutional framework, given the players' strategies.

What are Unexpected Consequences of a Well-intended Revision of the Employment Contract Law in China?
Lifang PAN
Huazhong University of Science and Technology

Why does a well-intended revision of the employment contract law lead to such unexpected impacts on the labor market in China? The new law adopted on June 29, 2007 was aimed to protect the laborers' rights and increase their incomes. However, the actual situation is that the revision encourages conflicts between employers and employees. The laborers make use of the revision to fight for their rights, and the employers take various methods to circumvent the rules and regulations to decrease the extra costs caused by the change. Both contractual parties try to adjust their behaviors in the drive to maximize their own interests, though these activities are less productive.

One of the most dramatic changes of the revision is that the employer has to provide a lifetime contract to employees who have worked for them more than ten years or who got two consecutive contracts. This makes employers become more cautious in signing contracts or try any other means to get around this regulation. They might set up two companies to take turns to sign contracts with an employee or prepare a more detailed job description for him. On the other side, employees might shirk if they get such contracts one day. As a result, on one hand the revision has planned to transfer a part of profits from employers to employees. On the other hand, the former's avoidance behaviors and the latter's counteractions increase transaction costs and substantially raise the contract price or lead to some other non-price distortions. The produced "rents" from these processes are going to be dissipated.

Multi-Governance Structures in African Cash-Crop farming:
Empirical Evidence from Pineapple Supply Chain in Benin
Stefano PASCUCCI, Djalal Arinloye and Geoffrey Hagelaar
Wageningen University

Pineapple is an important cash crop production in Benin. Previous investigations of the Beninese pineapple supply chain have shown that the traditional and most dominant governance structure (GS) to transact pineapples is the spot market. In recent years pineapple producers have also participated in other forms of governance structure such as contract farming (so-called outgrowing scheme) and collective action (producers' organizations).

According to New Institutional Economics we might observe the use of a specific governance structure that is the most cost-economizing within the spectrum of all the different typologies of governance structures (Williamson 1991; Ménard, 2004; Ménard and Valceschini, 2005). This decision-making process ends up with the selection of one (or more) governance structures among different alternatives taking into account the different transaction attributes.

However in a context of multiple governance structure choice, such as in the Beninese pineapple chain, it is still unclear whether or not these decisions are independent or interrelated. Moreover it is not well understood how different factors such as social embeddedness, institutional environment, farm/farmer characteristics, and transaction attributes affect the choice of governance structures in cash-crop transactions in less developed countries.

If an interrelation does indeed exist and different factors are better understood, they might be used to predict cash-crop farmers' decisions. We propose to take a first step in this direction.

Therefore the purpose of this paper is to analyze the choice of multi-governance structures of cash-crop farmers in Benin and to test the role of social embeddedness, institutional environment, farm(er) characteristics, and transaction attributes. In 2009 we collected data from a sample of 219 farmers in Benin related to their decisions on the type of governance structure to use in transacting pineapple. To analyze the correlation between choices and the main factors explaining them we use a multivariate probit model.   The results provide empirical evidence that challenges New Institutional Economics and helps to better predict farmers' participation in cash-crop-related transactions in less developed countries.

Institutions and Economic Segregation in Brazil's Old Republic
Universidade Federal do Rio Grande do Sul

The objective of this research is to analyze how an unequal distribution of Brazilian political power at the beginning of the Republic (1889-1930) affected the distribution of economic resources for different social groups. Two of them deserve special attention, the recently freed slaves and European immigrants, brought to the country to be a low-cost work force. Since the distribution of economic resources is influenced by political institutions, this research seeks to identify which social groups were favored or disserved by the institutional structure.

The end of monarchy in Brazil represented significant changes in the institutional structure that changed the rules not only at the governmental level, but also for individual rights. For this study, classic interpretations of this period were used, along with the theoretical framework of the New Institutional Economics represented by the works of Douglass North and Daron Acemoglu. Qualitative evidence shows that federal governments played an important part in discrimination concerning social groups, limiting access to citizenship. Current quantitative evidence shows that asymmetric institutional access was an important factor to explain the income disparity observed between these groups during the 20th century.

An Overhaul of Doctrine: Has Inflation Targeting Opened a New Era
in Developing-Country Peggers?
Staffordshire University

The aim of this paper is to examine empirically the effect of a regime switch from exchange-rate targeting (ERT - fixed exchange rate) to inflation targeting (IT) on monetary policy in developing economies. A group of developing countries that have historically experienced such a switch is analyzed versus a control group of comparable countries that in the sae period continued to target the exchange rate. The economic model used is a fairly classical Taylor rule, augmented with the exchange rate. The period is January 1991 to December 2009. Two methodological approaches are used: panel switching regression and Markov-switching method, with special account of switch endogeneity.

Results from the panel switching estimation suggest that IT represented a real switch in the investigated countries. Under IT, these countries became more concerned with combating inflation, but their reaction was moderated compared to the period before and to the control group, because of the background of a more cautious monetary policy. Still, the price they paid for this is a higher level of interest rates. However, this approach could not reveal whether overall volatility in the economy changed with the switch to IT. Moreover, it is argued that although countries have a date when they officially switched to IT, this does not necessarily have to be reconciled with the moment of the real switch, i.e. the latter might be obscured.

To overcome these potential drawbacks, the Markov-switching approach is employed, whereby regime switching is an outcome of unobservable random variable. The identified characteristics of the inferred regimes lead to the conclusion that the earlier regime can be robustly reconciled with ERT and the later regime with IT, except in Hungary where monetary policy is governed by one regime only over the entire period. The estimated coefficients suggest that central bank responses moderated under IT, while the response to the business cycle is found to be even milder, but with limited significance. Although both approaches have different drawbacks which compensate, still both lead to the conclusion that IT represented a real switch in developing countries and that the period of IT was characterized by more stable economic environment, by strict focus on inflation, and, possibly, by consideration of the business-cycle position.

Integration of Different Regional Ethanol Markets and Transactions Costs
São Paulo School of Economics

I. The first part attempts to assess if it is possible to consider, under current conditions, the existence of an international ethanol market consisting of highly integrated different regional markets as is observed for other agricultural commodities (e.g., soybean, corn, cotton, etc.). If the international ethanol market does not have a degree of development compatible with other commodities markets, the price transmission between regional markets for this biofuel will happen slowly and with a weaker intensity than is observed in the markets for other commodities. The absence of the world ethanol price is evidence that suggests the weak development of this market.

II. If the hypothesis of the previous part is not rejected, the second part will assess if the removal of subsidies and trade barriers imposed by the U.S. to protect its domestic market is not a sufficient condition for the development of the international ethanol market, as part of the literature says.

III. If the previous part's hypothesis is not rejected, it opens up an opportunity to investigate what the other necessary conditions to develop the international ethanol market are. The standardization of a commodity, the establishment of a future market for this good and its broad supply are common characteristics of several agricultural commodities widely traded in international markets. Such characteristics are important because they reduce uncertainty, increase the frequency, and reduce the specificity of the contracts used in each negotiation. Lastly, they reduce transaction costs to trade certain goods. Are the transaction costs incurred to trade ethanol on the international market significantly higher than those incurred to transact other commodities such as soybeans? This part, by measuring the transaction costs incurred to trade ethanol on the international market, aims to answer this question.

Towards a Goal-Based Approach to Analyzing the Effectiveness
of the WTO Dispute Settlement System
The Hebrew University of Jerusalem

International trade is a vital element of world economy. Nevertheless, despite the known virtues of international cooperation, trade-related disputes between states are an inevitable feature of economic relations. Hence, an effective dispute settlement system is a fundamental ingredient in any international trade framework; especially in a wide-ranging multilateral framework such as the WTO, which regulates the trade relations of over 150 states.

The intricate question, however, is what is an effective dispute settlement system? Attempts to assess the effectiveness of the WTO dispute settlement system thus far fail to introduce a clear definition to this notion as well as a comprehensive methodical approach to analyzing its performance. Furthermore, most studies on the topic conceptualize effectiveness in a rather narrow, one-dimensional manner, which usually equates effectiveness with compliance, thus overlooking other fundamental goals of the system and their interconnections. Similarly, most studies fail to consider the broader institutional framework in which the dispute settlement system is situated, its role in global-governance, and their influence, in turn, on its performance analysis.

In my PhD thesis, therefore, I seek to introduce an interdisciplinary and multidimensional scheme to analyzing the performance of the WTO dispute settlement system, and to provide a nuanced effectiveness assessment of critical aspects of its operation. In so doing, I use analytical tools developed in the organizational and institutional theories. Especially, I build upon the rational-system-approach, which defines effectiveness as the extent to which the organization attains its goals. Such intellectual borrowing, I believe, can enrich an endeavor to analyze the performance of a complex adjudicating-institution such as the WTO dispute settlement system - an institution the effects of which reach well beyond the regime in which it's embedded.

Note, the effectiveness scheme suggested here is not only of academic interest, but also of practical importance. Among other things, it can provide WTO members with an improved understanding of the dispute settlement system performance thus far and to assist them in utilizing the system in a more efficient manner. Additionally, a nuanced effectiveness assessment could highlight what reforms, if any, are needed in the structure and processes of the system, so as to enhance its functioning and ability to achieve its objectives.

The Evolution of Market Governance: Illicit Trade & Prison Gangs
Duke University

How do prisoners exercise social control? They have access to a range of instruments, ranging from decentralized and voluntary mechanisms to centralized and coercive ones. The relative cost of using these mechanisms dictates their use. This paper examines the determinants of social control across county, state, and federal correctional facilities.

The Effect of the Landfill Tax on Local Authorities' Waste Policies,
Ben Gurion University

The Landfill Tax is the first environmental tax in Israel, approved late 2007. It sets a fixed charge per ton waste buried in landfills, making this popular option of waste disposal (about 80% today) more expensive. The most affected by this tax are the entities in charge of waste collection and disposal – local authorities. While this tax has no direct incentive on single households, it is presumed to post an important economic incentive on the local authorities to establish and maintain recycling services.

The Landfill Tax, as most market based environmental instruments, assumes the usual neoclassical assumptions, which are far from accurate. Local authorities are constrained by many formal and informal institutions, such as existing laws and regulations, binding contracts, public opinion, and ideology. Their ability to receive price signals may also vary. Ex-post evaluation of landfill taxes presents further challenges, as revealed choices are biased with external factors such as wealth, raw material prices, and energy costs. Therefore, few serious ex-post evaluations on landfill taxes have been carried out.

To analyze the effect of the Israeli Landfill Tax, this research aims at several goals. First, map and assess the strength of formal and informal institutions affecting decision-making regarding waste in local authorities. The first part of this goal – mapping – was achieved by interviews with officials of local authorities dealing with waste. The second part – assessment – is to be carried out soon by a survey among their colleagues.

The second goal is an econometric analysis of waste figures and trends in local authorities of Israel, considering their wealth, population, and other social-economic characteristics. Initial results indicate that while population seems to have no significant effect on per capita waste generation, wealth has a significant effect on waste only in smaller towns, not in cities. This could indicate some institutional difference in waste management between larger municipalities and smaller ones. In a short time survey results could be added to the regression equations, revealing which highly assessed institutions play a key role in waste reduction.

Does the Iron Fist Squash the Creative Mind?  Evidence from Russia's Regions
Imogen WADE
University College London

Is there a relationship between sub-national regime type and the performance of science parks in Russia?  Globally, the empirical evidence on the performance of science parks is mixed at best.  According to the International Association of Science Parks, science parks are organisations that aim to generate wealth through promoting the competitiveness and culture of innovation of the new firms, businesses, and knowledge-based institutions located there.  Many national governments have introduced science parks over the last 50 years.  Russia today has 60-80 science parks, most created by the regions, yet a recent evaluation found only 10 that reached international standards of effectiveness.  Some evidence about science parks in Russia suggests that they do not encourage innovation but are simply a cover for rent extraction.  Certainly, evidence on outcomes of research and development in Russia shows relative failure compared to OECD and other developed countries.

The broader puzzle I address here is why innovation 'works' in some institutional and political contexts but not in others.  There are questionable theoretical and empirical links between political regime type and innovation.  My research will generate rigorous new empirical evidence to show whether there is any association between democratic or authoritarian regional regime type and performance of science parks in generating innovation.

One approach to answering this question about the relationship between regime type and science park performance is to use the perspective of von Hayek's 'knowledge problem.'

I plan to answer the question by selecting four regions of Russia with equivalent levels of economic development yet different scores on a democratisation index.  The four regions should also have at least one science park.  Next I will calculate a performance score for each science park – measured by subtracting an index score of total incoming actual resources from an index score of results produced by the science park.  The 'results' score could be based on the criteria used in other evaluations of science parks, including: productivity of firms in park, linkages with nearby university, technologies created, degree of interest in science park by regional/local authorities/industries etc.).  Next, I can see whether there is any relationship between the science park's performance score and regional regime type.

I will combine quantitative and qualitative methods of data collection and analysis, including on-the-ground fieldwork in selected sites.