WORKSHOP ON INSTITUTIONAL ANALYSIS
MAY 12-18, 2019
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The Importance of Indigenous Economists in Economic Development:
Comparative Analysis of Mongolia and Ukraine
National University of Mongolia
There is a widespread belief that the policymakers and economists design economic policies and interventions to generate economic growth and increase social welfare. Then how these societal goals are achieved could depend on the ultimate goal and actions of both the policymakers and their economic advisors. But Coyne and Boettke (2006) argue that the question of who these policymakers and economists are and where they come from is largely overlooked.
New institutional literature suggests both formal and informal rules serve to govern human behaviour and the enforcement of those rules. In particular, North (1994, 2005) stresses the importance of indigenous or informal institutions in understanding any economic order.
Coyne and Boettke (2006) criticize the international development community to emphasize the role of exogenous institutions while overlooking the critical role played by indigenous institutions. They go even further and argue that their current agenda of the investment in education is flawed if the sequencing is not right. In particular, they suggest " ...Simply forcing education has little or no effect without the other contributing factors. Transferring resources to build schools and provide teachers does not lead to growth. Instead, a country's environment must provide a set of incentives that creates a high payoff to investing in one's future".
This paper tries to shed light on the current state of Mongolian economists working in and outside the country and economics research in Mongolia and compares their profile with those of the international consultants who have advised our governments since we made a transition from the centrally planning to a market driven economy in the early 90s. I also compare my results with Ukrainian case a la Coupe (2008).
Is Sharing Really Caring?
The Effect of Airbnb on the Affordability of Housing
Andrew BIBLER, Keith Teltser, and Mark Tremblay
University of Alaska Anchorage
The dramatic growth of peer-to-peer housing rental platforms such as Airbnb, HomeAway, and VRBO suggests that they generate substantial benefits for participants. However, critics argue that such growth has made housing less affordable for permanent residents. While the option of renting out one’s residence on a platform like Airbnb can help offset the cost of housing, it may also put enough upward pressure on prices to displace existing residents or make long-term housing more difficult to obtain.
Because market participants are difficult to identify and there is a lack of legal precedent, state and local governments have struggled to create and enforce regulation related to the sharing economy. While some state and local governments have engaged in long legal battles over concerns with peer-to-peer housing rentals, others have worked directly with the platforms to enforce their regulations.
In this paper, we estimate the impact of the growth of peer-to-peer short term housing rentals on the affordability of housing using policy-based city-level shocks that dramatically reduced the number of local Airbnb listings. To the extent that these negative shocks free up housing supply that is reallocated for long-term use, we would expect them to undo the impact that rapid Airbnb growth has had on housing affordability in those areas. We test this using transaction level data on Airbnb rentals, home sales, and foreclosures. Our findings provide insight on the costs and benefits of Airbnb to permanent residents and highlight the role that cooperation between governments and platforms can play in regulating new sharing economy markets.
Does the Ban on Political Donation by Firms
Impact Public Procurement Contracts?
Francisco CAVALCANTI, Claudio Ferraz, Dimitri Szerman
PUC-Rio and CPI
Whether or not firms should be allowed to donate financially in political campaigns in elections has been a subject of debate. On the one hand, corporate donations could improve political information in a way that increases civic engagement and ensures that a plurality of views and opinions are heard. On the other hand, corporate donations are also commonly associated with political favors to donors and can lead to corruption. This research project aims to study the effect of political contributions on public procurement contracts. For this purpose, we take the advantage of a change in the law of Brazil in 2015 where firms have been prohibited from making political donations. Such a context allows to empirically assessing whether there was an impact of the ban of political donations on the number of public contracts issued by the central government won by donor firms. More specifically, we believe in the feasibility of implementing a differences-in-differences approach to estimate the causal impact. We collect detailed data from a variety of sources. We gathered data from the Brazilian Central Government on the universe of public procurement contracts from 2000 to 2017 with detailed information such as contracted value, the method of purchase, additives, date, the object of the contract, and so on. We also have detailed data on political donations from 2002 to 2018, drawn from the Higher Electoral Court (TSE). This data details the donation of firms and individuals, the value of the donation, the date, and the recipient political candidate.
The Scramble for Africa and the Origins of Financial Underdevelopment:
Theory and Evidence
Boubacar DIALLO and Wilfried Koch
Qatar University and UQAM
This research theoretically and empirically investigates to what extent the partitioning of Africa during the Scramble for Africa, which happened during the Berlin Conference of 1884-1885, has had a long-lasting effect on contemporary levels of financial development across countries and ethnic groups. Using differentiated products in the banking system a la Salop (1979), it shows that partition increased the distance between households/firms and banks, which led to more differentiated banks in terms of ethnicity; this negatively affects the equilibrium loan rate. Empirically, it uses the multilevel Bayesian method and shows that using private credit that the probability that the variable of partitioning captured by the Scramble of Africa is between -27.08 and -18.97 is 0.95, while using liquid liabilities and banks assets the coefficient lies between -24.01 and -16. 73; and
-17.11 and -11.34, respectively. In addition, it establishes a negative and significant association between ethnic financial inclusion and ethnic partitioning. Moreover, it finds that a one-unit change in ethnic partitioning decreases access to financial services as measured by financial inclusion by 61%.
Group Identity and Expected Effort in Promotion Decisions
Macquarie Graduate School of Management and Masaryk University
Does group identity play a role in deciding between promoting an internal candidate or hiring an external one? When filling a vacant position, firms often have a choice between an internal and external candidate. There are valid reasons why firm might prefer hiring an external candidate: bringing fresh ideas to the table, larger pool of candidates outside of firm than on the inside, etc. There are also reasons to favor internal candidates: expected reciprocity, worker motivation, skill observability and firm-specific skills. Besides these, group identity can be shaping the decision via in-group favoritism.
Deciding by group identity only could lead to inefficient allocations in companies. With in-group favoritism, less productive candidates can be selected for the vacant jobs. This research aspires to shed light on this possible decision-making blind spot and, if needed, highlight the need to put specific practices in place. Specifically, I conjecture that decision makers display in-group favoritism if both candidates are equally productive. As candidate productivity is reflected in decision makers' own earnings, I conjecture that group identity will be a second order consideration after candidate productivity. Furthermore, I conjecture that decision makers will have higher expectations of internal candidates than external candidates when we allow candidates themselves to select effort levels.
I investigate the role of group identity in the promotion decision with incentivized laboratory experiments. First, candidate productivity is exogenously imposed; then I expand the design with considerations of post-promotion effort of the candidates and with decision makers' expectations of these effort levels.
I find that in-group favoritism, when studied in isolation, has only minor effect on the hiring/promotion decision. With productivity being perfectly observable, decision makers are not favoring less productive internal candidates over more productive external ones. When the candidates choose how much effort to exert, decision makers expect internal candidates to work harder and are more likely to select them over external candidates.
Are Female Leaders Better for Environment?
Evidence from Chinese Municipal Party Secretaries
Southwestern University of Finance and Economics
Are female leaders better for environment? This study documents that, in China, the level of environmental pollution in areas governed by women is significantly lower than in areas governed by men. Also, the longer tenure a female official has served, and the further away she is from retirement, the more significant this “lower pollution effect” becomes. These findings certify the assertion that women may pay more attention to offspring and sustainable economic development. Meanwhile, gender differences on networks, levels of overconfidence, and degrees of competitiveness also play the role on this lower pollution effect. Further, this research finds that areas governed by female officials have no significant difference in GDP growth rates but lower rates of industrial growth in comparison to male officials. It seems that female officials use their discretionary power to control pollution level while also achieving main target of political promotion tournament.
Keywords: gender, environmental pollution, promotion tournament
Governance Arrangements Used By Mobile Money Agents in Kenya
In 2007, Safaricom, a phone company, launched the world's first mobile money service in Kenya. Mobile money customers can deposit, transfer, and withdraw funds without owning a bank account. Mobile money has spread rapidly across Africa, including into rural areas where most low-income communities live. Studies indicate the service has significant poverty alleviating benefits.
This paper explores the following question: what governance and other institutional arrangements used by phone companies and so-called mobile money 'agents' have enabled mobile money to expand into rural areas? Agents comprise corner-stores, petrol stations, and other retail outlets. They serve as access points for customers to deposit and withdraw funds from mobile money systems.
The paper interprets agent arrangements based on the discrete alignment principle (Williamson (1991)): arrangements are selected through efforts to reduce transaction costs, specifically by aligning governance structures with exchange attributes. In this case, governance structures must help agents maintain sufficient e-money or cash to honour customers' requests to deposit or withdrawal funds, respectively. Such structures must operate credibly given institutional and infrastructure limitations in Kenya, particularly high costs of enforcing contracts, and high transportation and communication costs due to infrastructure limitations, such as inadequate roads, regular power black-outs and inconsistent mobile phone signal.
In urban areas, the governance of agent networks will be relatively decentralised. Agents can balance their liquidity through bilateral arrangements: exchanging e-money or cash with other agents as needed. In the event of a dispute, agents can also seek arbitration from the phone company or courts at relatively low cost.
In rural areas, decentralised institutional decision-making will be less effective. This is because contract enforcement, transport and communication costs increase, making it more costly for agents to co-ordinate their liquidity with each other. As a result, there will be more need for 'master agents'. These actors co-ordinate the liquidity of between 10 and 200 agents, allocating e-money or cash where necessary.
The paper tests these claims by analysing empirical material on the evolution of Safaricom's agent network from 2007-2014. It examines the extent to which, if at all, the ratio of master agents to agents increases in rural areas.
Making the Pearls of the Orient: Treaty Port, Concession,
and the Rise of the Modern Economy in China, 1840-1920
The University of Hong Kong
Using a prefecture-level panel dataset from the 1840s-1920s, this paper explores the effect of historical concessions on the rise of the modem economy in China. By applying a DID method, it is found that concessions in Chinese history have a significantly positive effect on the rise of China's modem economy, measured by modem native firms and native banks. More specifically, it shows that the treaty ports with concession(s) perform better in boosting modem economic development than the treaty ports without concession. This effect is still significant after controlling for the effects of infrastructure conditions, conflict, and foreign investment. Employing the arbitrary boundaries of the concession, a Regression Discontinuity method is also applied to confirm the causality. It shows that there is significant difference in modem economic development between the two sides of the concession boundaries: the regions located inside of the boundary perform significantly better. I argue that the effect of concession partly comes from the fact that concessions could provide better protection over property safety, especially during the Warlord Period, when the political environment was not stable. In addition, concessions may also have positive influences on the legal system and improvement of administration. The administrative institutions favor the merchant elites in many aspects, such as a reasonable tax burden. The effect of concessions with a common law system surpasses that of those with a civil law system.
Legal and Illegal Strategies to Circumvent Rent Control:
Evidence from a Case study in Post-War Florence (1947-1970)
University of Turin
During the 20th century most European rental markets were hit by strict rent control laws, whose economic effects are almost universally claimed to have been disruptive. But did landlords and tenants really comply with these laws? To which legal and illegal strategy, if any, did economic actors resort to circumvent these price ceiling?
The present work investigates these issues using new empirical evidence from an original dataset, which contains information on a sample of 360 housing units rented in Florence between 1947 and 1970. The dataset is based on the accounting registers of a private real estate company which owned and rented all the units in the sample. The registers, which served for the company’s internal use only, report its legal as well as its illegal activity, which was entirely aimed at circumventing rent control.
The paper illustrates how different strategies were adopted in response to different rent control laws, and provides an estimate of the impact of each strategy in reducing the wealth dissipation created by rent control.
The work is intended as an empirical contribution to the property rights literature to rent control, which since Cheung’s seminal paper (“A Theory of Price Control”, 1974) has been enriched theoretically, but has mostly remained descriptive and anecdotal in its empirical part precisely because of the difficulty of finding data on illegal activity in the rental market.
The Relation between Religion and Turnout: The Case of Poland
While institutions in general are being extensively investigated, and the role of formal institutions is the topic of much research, the informal institutions, being a phenomenon which is hard to measure, seem to be relatively less examined. In this research we aim to fill this gap in the literature by studying the impact of changes in religious behaviour. This focus is motivated by the fact that informal institutions have often its source in religion.
The research focuses on Poland. It is a unique setting, with dominant Roman-Catholic religion. This allows to investigate behaviour of majority of citizens in contrast to already conducted research on that field, which either concentrate on minority religions, or have to control for multi-religious environment.
Submitted research aims to investigate the causal relation of religiousness on electoral turnout. It uses data provided by Institute for Cathoiic Church Statistics (the Eucharist and Communion attendance statistics), as well as Central Electoral Commission in Poland (electoral results). Data aggregation to municipality level allows the usage of socio-economic controls from territorial unit database provided by Central Statistical Office of Poland.
Preliminary results show strongly significant positive correlation of religiousness and turnout both on levels and long-term difference-in-differences variables (i.e. 1990-2010, 1995-2015). Considered methods, which would allow providing causal evidence are panels and IV. Potential instruments are unique, municipality-level, historical data on the life, death, and activity of Polish saints and blessed; numbers of religiously connotated street names; numbers of religiously connotated monuments.
Foreign Aid and Local Public Goods Provision:
Evidence from China’s Aid in Africa
Yuchen LIN and Zhuo Nie
IForeign aid has been considered to have complicated impacts on development. This paper analyzes the fiscal incentive effect of aid on local governance from the perspective of local public goods provision. We examine two opposite hypotheses based on fiscal incentive theory. First, aid could reduce local government’s need to appease its tax base, and weaken their motivation to provide public services. This is in line with the logic of “resource curse”. Meanwhile, aids in infrastructure could reduce government’s cost for providing public services and improve public service.
Using geographical information, we match Chinese aids in Africa during 2000-2014 period from AidData and six rounds of individual level Afrobarometer survey across 36 African counties. It enables us to investigate the impacts of aid at subnational level to control time-invariant heterogeneities across regions. To alleviate endogenous allocation of aid, we argue that China’s capacity of implementing new aid is highly correlated with its foreign exchange reserve. More reserve leads to more aid. The aid brought by increased foreign exchange reserve is more likely to be allocated in regions having closer relationship with China. We then follow Nunn & Qian (2014) to construct the interaction of the likelihood of a subnational region receiving Chinese aid and China’s foreign exchange reserve in last year as an instrument for aid in a given year.
The empirical results consistently indicate lower accessibility to public services provided by local governments around Chinese aid project sites, and similar pattern is found in World Bank’s aid. We further confirm that the negative fiscal incentive effect could hardly be driven by unobservable characteristics of Chinese aid, but rather caused by local politicians’ decreased responsiveness to people’s demand. We also exclude three alternative mechanisms. First, we find aid in one sector decreases public goods provision in other sectors, suggesting that our results are seemingly not driven by fiscal fungibility. Second, Chinese aid projects result in lower political trust and satisfaction on local government, which exclude the argument of decreased incumbent’s electoral incentive. Lastly, we find no evidence suggesting that people’s requirement on local government’s responsibility become stricter after receiving Chinese aid.
Greasing the Wheels of Economy: Corruption or Anticorruption?
Evidence from China's Residential Land Market
Xi LU and Ming Li
National University of Singapore and University of Pennsylvania
In this project, we aim to test the "greasing-the-wheels" hypothesis in the context of China's residential land market. We show that removing corruption in China's monopoly land market caused a decrease in land transaction volumes which forced market outcome to deviate more from the social desired level. To ascertain the details of corruption in land sales, we collected a dataset of all of the cases posted by the Party's Central Discipline Inspection Commission between November 2012 and September 2015. For each local official under investigation, we searched all of the reports, news, and legal documents regarding his or her downfall. By reading the materials, we then determined whether this official was involved in any corruption and what type of the corruption was. We show that removing different forms of corruption would lead to different economic consequences. Only removing corruption that helps in circumventing red tape and reducing trading costs could cause a loss in efficiency. There is no such effect if targeting corruption in the transaction stage of land sale. Our findings support the "greasing-the-wheels" hypothesis: when an economy is inefficient owing to some pre-existing distortions, corruption could result in positive consequences by offering a "second-best world." In the context of China, we show that without fixing the monopoly in land system, the current anti-corruption campaign may be less efficiency-improving than we had thought before.
Evading by All Means: How Does Value-Added Tax
Affect Payroll Tax Compliance in China?
Kevin Zhengcheng Liu and Zhuo NIE
Why are developing countries so difficult in collecting revenues? We argue that in a context with limited tax capacity, if tax enforcement becomes stricter in one tax, firms would respond to evade more in other taxes.
We extend this multi-dimensional tax enforcement problem to different tax liabilities. Consider a firm with two kinds of tax burden: value-added tax and payroll tax. Without other constrain, the firm would evade as much as possible until the marginal evasion benefits of the two taxes are both zero. However, the CEO of the firm only has limited time, and needs to distribute it to evasion of the two taxes. In an environment of limited tax capacity, the room of tax evasion would be so large that the CEO does not have enough time to reach the previous optimal zero point. The final time allocation would still make marginal benefits of the two evasion options equal, but now both of them are positive.
Then, when the enforcement of one tax, for example value-added tax, is stricter, value-added tax evasion becomes harder, and the marginal benefit of value-added tax evasion becomes lower. Now the marginal benefit of payroll tax evasion is higher than value-added tax evasion, and thus the CEO will shift more time from value-added tax evasion to payroll tax evasion.
This simple framework makes a set of predictions in the case of value-added tax and payroll tax. First, stricter enforcement in one tax could have a negative impact on compliance of other taxes. Note that this tax evasion shift effect needs the background of tax capacity scarce. So, the second prediction is that more tax evasion shift should be observed in those firms living under slacker monitoring. Third, a firm in more labor-intensive industry usually has a heavier payroll tax burden, which suggests a higher benefit in shifting to payroll tax evasion. So, firms in more labor-intensive industry should have bigger evasion shift behaviors. The empirical results are consistent with the predictions of the framework.
Do Litigants Settle Their Case when They Face Adversarial Judges?
Evidence from French Courts
Collegio Carlo Alberto & Università degli Studi di Torino
Are more cases settled when judges are elected among the most belligerent trade unions? In the specific case of French employment courts, the answer is broadly negative. This article provides evidence of the minor role that judges have on alternative dispute resolution in and out of court. Previous literature has suggested a potential bias in the functioning of these labor courts. Judges are appointed, with a national election, among trade unions’ members. Some syndicates use aggressive tactics in the pursuit of syndical policy objectives, and this belligerency might be conveyed in judicial decision-making. To address the endogeneity issue related to the measurement of this adversarial attitude, the paper relies on historical evidence to construct an instrumental variable and assess why settlements are so low. Indeed, much of the unwillingness of trade unions to achieve peaceful social dialogue is proven to be connected with the crisis triggered by a minuscule parasite, named phylloxera. Therefore, the final explanation is that polarized courts convey an image of belligerency and support a full but long assessment of legal rights, encouraging the parties to wait for the judgment instead of anticipating its effects with conciliation.
Fiscal Laziness in Local Governments:
The Effect of Mining Royalties on Tax Revenue
Group for the Analysis of Development – GRADE
Since the decentralization process in Peru began in 2002, central government has transferred a large amount of resources to local governments in order to provide public goods according to population's needs. However, it caused that around 60% of local governments' fiscal budget depends on those transfers, while only 20% supports on local tax collection. Furthermore, when disaggregating the transfers, 60% of them came from natural resources royalties, a non-renewable and highly volatile source of income.
This framework is opposed to general agreement in literature that suggests decentralization process should be implemented through own resources (such local tax revenue) because they bring about improvements in accountability and reduce corruption. Nevertheless, when it takes the other path (decentralization through transfers), local governments have fewer incentives to collect taxes. This phenomenon is called fiscal laziness.
The aim of this article is to examine if mining royalties caused a fiscal laziness effect in Peruvian local governments through lower levels of tax revenue. We use administrative data from every municipality for the period 2009-2018, total production and international prices of principal mining commodities extracted in Peru (gold, silver, copper and zinc). Our identification strategy relies on instrumental variables approach to deal with the endogeneity of natural resources royalties. We exploited gross production value of mining commodities as instruments of transfers from natural resources royalties.
Preliminary results indicate there is not a fiscal laziness effect in Peruvian local governments during the last decade, similar to previous studies done before 2010. However, it is still possible there are heterogeneous effects depending on characteristics of municipalities (such as rurality, size, governance, gender of major, etc.). Those are the next steps of the investigation.
The Effect of Weather on Mortality in Russia: What if People Adapt?
Carnegie Mellon University
Climate change issue remains at the top of political agenda in many developed economies. Many studies find that rising temperatures would result in drastic changes in living standards and quickly jump to the conclusion that large-scale government intervention to curb greenhouse gases emissions is necessary. Less attention is given to free markets being able to deliver adaptation response on their own.
I assess the value of free market mitigation efforts in the case of a particular country: Russia. Like other studies, I find that not taking into account mitigation response results in considerable estimates of welfare costs of global warming. However, I also find a notable heterogeneity in regional responses across Russia to high heat episodes which are indicative of profound adaptation responses. Namely, I show that regions that currently are exposed to high heat on a regular basis tend to incur smaller losses from high temperatures than the colder regions that see a spike in temperatures only occasionally. I then conjecture that when currently colder regions would see high temperatures more regularly they might adopt the same mitigation techniques currently employed in the currently warmer regions. When I recalculate the effects of climate change taking into account such adaptation response, I find that in the case of Russia global warming is likely to be beneficial.
I think those results might have profound implications for the governmental policy in response to climate change. Free market adaptation response might be all we need to mitigate global warming impact, at least in some countries. Strong governmental response and environmental regulations and incentives currently implemented (at a considerable cost) in the US and other developed countries might be resulting in significant waste of resources.
Several caveats remain to be studied. What are the mechanisms by which Northern (colder) regions (countries) could imitate the current adaptation techniques undertaken by Southern (warmer) regions/countries? Would Northern countries be able to afford those techniques? Is there a role of political economy in this process: would adaptation techniques undertaken in the South be shut down by incumbents benefiting from current government environmental subsidies and grants?
Subdividlng the Commons: The Role of Rules
Julio Alberto RAMOS Pastrana
The importance of property rights has been extensively studied. Nonetheless, the study of how the specific process to modify property rights affects property rights regimes has received scant attention. Given the influence of property tights in economic development, and the importance of rules in determining property regimes, a further understanding of the role of rules could help us to improve societies' welfare by allowing us to design policies that will not have (dire) unintended consequences.
In this research, I aim to examine how the bargaining process to modify property rights over land (i.e. the rules of the negotiations over land distribution among the members of the community with varying capacities to influence the process) affects communities’ property regimes. In particular, I look at the change from common to private property and how the contracting process through which this change takes place affects common property land subdivision.
The empirical analysis uses data from the Mexican ejidos, agricultural communities
Created after a land reform carried out in the early twentieth century. These agricultural communities were initially organized as common property, but after a second land reform in 1992 were allowed to choose their property regime, having the possibility to subdivide their land and transition toward private property.
The empirical analysis uses census and administrative data over the period 1992-2007. I exploit arguably exogenous variation in ejidos land values to analyze their decision to parcel common land under the rules imposed by the reform. My empirical strategy compares changes in land privatization before and after the 1992 land reform for ejidos with different land values. Results support theoretical predictions that rules can hinder subdivision process. The results indicate that ejidos with better land privatized a smaller share of their land.
Juan Felipe RIAÑO-RODRÍGUEZ
University of British Columbia
Is bureaucratic nepotism effectively detrimental to the functioning of the state? States capable of collecting taxes enforce law and order and provide public goods have the institutional framework necessary to achieve economic development and prosperity. In modern states, however, all these capabilities ultimately depend on the state bureaucracies and individuals who implement them. In this sense, to study the determinants of state capacity and its role in economic outcomes, it is essential to understand how bureaucracies behave, persist, and succeed over time. In this paper, I contribute to this understanding, examining how family networks, in general, and kin favoritism, in particular, affect the career paths and tenure of bureaucrats in different levels of the public administration; and how at the same time, they influence the performance of state institutions.
I focus my empirical analysis on the Colombian National Government and its entire bureaucratic system. I explore whether the existence of kin connections with bureaucrats inside or recently outside the public administration affect the strengthening of state capabilities. My empirical strategy exploits discontinuities in anti-nepotistic legislation and the disruptive effect of political turnover of top bureaucrats to evaluate the impact of kinship ties on the adequate performance of the state. In particular, I examine how having family connections within the public sector are related to the process of hiring, promotion, and persistence of civil servants, the allocation of public procurement contracts, and the incidence and diffusion of white-collar crime. Furthermore, I study how nepotism relates with specific organizational goals at the agency level, and how it differentially impacts the performance on these goals depending on the level of centralization of such institutions, the degree of branching of its hierarchies, and on whether or not they are ``mission-oriented''. To reconstruct family networks, I use a unique administrative data of bureaucrats’ relatives in the first degree of consanguinity and a novel machine learning algorithm to identify close and distant relatives in official data.
As oppose to most of the literature on patronage and political quid-pro-quo exchange which tends to highlight the importance of political connections, I emphasize the role of kinship networks within the whole hierarchical structure of the state, from top managers to low tier bureaucrats, regardless the political affiliation of individuals and their inherent jurisdictional power. In my preliminary results, I found that bureaucratic nepotism is a widespread phenomenon in Colombia, but that it could be constrained efficient for the functioning of the state when public sector agencies are highly hierarchical, decentralized, and mission oriented. To the best of my knowledge, this is the first paper connecting bureaucratic nepotism and state capacity building and doing so using high-quality administrative data and empirical strategies based on extended social networks.
Resource Shocks and Environmental Regulation
Nathaly M. RIVERA
University of Alaska Anchorage
Do natural resource shocks lead to laxer environmental regulations? Natural-resource deposits offer significant economic opportunities but also threaten human health and environmental quality. Those who stand to gain from the resource extraction may be more likely to favor pro-extraction political views that support lax environmental regulations, while those who bear the negative externalities may demand stringent regulations to govern this activity securing a certain degree of environmental quality. In any case, natural resources have the potential to impact policy outcomes as politicians can respond differently to the consequences of the extraction. These political outcomes may lead to policies that ultimately shape future economic outcomes, which could spill into a vast range of regulatory issues beyond those related to the extraction. Anecdotally, some of the most conservative places in the United States are also the most resource-rich economies (e.g., Texas, Oklahoma, Wyoming, North Dakota, and Alaska).
In this study, we aim at understanding the relationship between natural-resource wealth, electoral politics, and regulatory issues. Particularly, we explore how natural-resource booms shape rules that revolve around the control of the resource extraction itself as it occurs with environmental regulation. We first model the selection of environmental policies in a resource-rich economy where environmental quality is defined as a public good. We hypothesize that due to economic rewards and a change in the median voter, booming areas favor laxer environmental regulations. We later test our model using the U.S. shale-gas “revolution” and its effect on the House of Representatives roll-call votes on environmental issues. To identify the effects, we run a differences-in-differences estimation on U.S. districts treated and untreated with the shale-energy boom. We contrast political outcomes before, during, and after this boom, exploiting the temporal and spatial variation. Preliminary results show that the shale-energy boom led to a rise of conservative ideas that call for laxer environmental standards. Our results shed light on the political economy of resource-rich economies and help to explain patterns of political ideologies within the United States.
Do the Super-Rich Benefit from Political Connections?
Evidence from Poland
Katarzyna SALACH & Michal Brzezinski
University of Warsaw
What factors contribute to the rise of the super-rich's wealth? In this article, we attempt to shed light on this issue by investigating the sources of the largest fortunes in Poland - a post socialist emerging economy, widely perceived as the poster child of successful transition to a market economy. In particular, we study whether political connections of the wealthy (cronyism) increase the likelihood of remaining listed among the Polish super-rich. We create a unique dataset based on rich-lists published yearly by Wprost magazine (2002-2018). Following the methodology proposed by Freund (2016) and Kaplan & Rauch (2013) we expand the data by adding information on the industry, the type of wealth (inherited, self made founder, self-made executive, self-made finance, self-made politically connected), company type (new, acquired, privatized), and personal characteristic of the billionaires, such as age, gender, (higher) education, having political connections (e. g. serving as a security agent during communist period, holding a position in the government or having close relatives there). We measure the dynamics of wealth of the richest Poles over time (changes in mean values and volatility), as well as the changing composition of their wealth. Specifically, we employ fixed effects filtered estimator to model the amount of wealth possessed by the super rich and Cox proportional hazards model to estimate the factors that increase or decrease the likelihood that the failure event (dropout of the list) will occur. Our early results show that the type of wealth matters: wealth possessed by the self-made politically connected - due to reasons other than privatization - is significantly larger in comparison to the one owned by self-made founders. The same conclusion applies to inherited wealth, self-made executive and self-made finance. Privatized companies seem not to result in bigger wealth than new ones but they lessen the probability of dropping out of the rich list. Politically connected wealth, however, seem to increase the probability of dropping out.
Turning a House into a Home:
Distinguishing the Effects of Use Rights and Transfer Rights in Urban Chile
University of Wisconsin-Madison
This paper differentiates the effects of use and transfer rights for formal housing on investment in children's education. To do this, I exploit a Chilean prohibition on selling government-subsidized homes in the first five years after the home is received. Chilean subsidized housing targets poor households, especially in dense urban areas with high rates of informality, and allegados, or families living in other families' homes, This prohibition allows me to separately identify the effects of use rights and transfer rights.
Recent literature has explored the mechanisms by which titling increases agricultural productivity through credit access, value of collateral, and security effects. While titling has been shown to improve child health and decrease child labor, the literature on education and titling is thin. In this paper, I propose a framework for understanding the distinct behavioral implications of use and transfer rights. Namely, use rights offer security and legitimization, while transfer rights offer access to credit markets. This project builds on existing literature in three primary ways. First, this program features an automatic sunset clause rather than a quasi-random rollout to landholders (as has been seen in Ecuador, Mexico, Peru, and Brazil). Second, I study the effect of transfer rights on educational outcomes for urban poor, rather than productivity or financial access for rural subsistence farmers. Finally, I am able to distinguish between the security effects of use rights and the financial effects from transfer rights.
I use panel data from the 2006-2009 waves of the nationally-representative CASEN survey in an event-study framework. This allows me to separately analyze the effects of receiving a home (year 0) and being able to sell that home (year 5). Preliminary results suggest that home ownership has a positive effect on school attendance, with this result increasing over time. However, there is not a significant discontinuity at year 5. This suggests that the effect of transfer rights does not affect education investment differently from the effect of simply owning the home. Further work will explore heterogeneity in the effects of housing title, specifically the roles of sheepskin effects and of historical housing policy.
Accountability as a Resolution
for the Intergenerational Sustainability Dilemma
Raja Rajendra TIMILSINA, Koji Kotani, Yoshinori Nakagawa,
Kochi University of Technology
The “intergenerational sustainability dilemma (ISD)” is defined as a situation where the current generation chooses actions to her benefit without considering future generations under current economic and political systems, compromising intergenerational sustainability (Kamijo et al., 2017, Shahrier et al., 2017). We propose a new mechanism to improve intergenerational sustainability called “intergenerational accountability (IA)” and examine its effectiveness through field experiments consisting of ISD games (ISDGs). In the baseline ISDG, a sequence of six generations, each composed of three members, is organized, and each generation is asked to choose whether to maintain intergenerational sustainability (sustainable option) or to maximize their payoff by irreversibly imposing costs on future generations (unsustainable option) within a 10-minute deliberation. With the IA treatment, each generation is asked to provide the reasons behind the decision as well as any advice to future generations that shall be passed to subsequent generations.
Our results indicate that the IA generations choose the sustainable option much more often than those in the baseline ISDG and provide positive reasons and advice for sustainable options to subsequent generations. Overall, one-way communication of reasons and advice in IA is identified to function as a social device to not only transfer a common image but also decrease social distance over generations for intergenerational sustainability. In other words, IA can be considered a process of sequential writing for one book by different generations for intergenerational sustainability.
Keywords: intergenerational sustainability dilemma, intergenerational accountability, field experiments
Deliberate Fuzziness: A Solution to Negotiation Problems in Banking
Hertie School of Governance
The international banking regulation framework has been heavily criticized by scholars of financial regulation for not addressing the major problems that made the pre-Financial Crisis regulatory system inefficient: consensus seems to be that banking regulation is too complex in the sense of including too many exceptions, special rules, deviations across countries, or general inaccuracies. Critics argue that this leaves much room for circumventing the rules through innovative strategies of regulatory arbitrage. Hence, most suggestions for improvements can be broken down to reducing such fuzziness and, thus, opportunities for evading the rules. Still, states and regulators seem to be unwilling to make banking regulation more coherent. My book attempts to examine why and at what stage states might create such an incoherent regulatory framework even though it seems to be clear that it is inefficient.
I suggest an economic model in which multiple players (states) have to agree on banking rules. They cannot regulate banks individually because of interdependencies. While states have to find a common regulatory approach, their preferences regarding regulation differ substantially based on the nature of their domestic banking system: the German government will rather try to reduce regulatory burdens for small savings banks while the French government is likely to prefer an approach that fits to its large banks.
My model treats fuzzy rules as a specific solution mechanism to such differences in preferences across similarly powerful states. States want to regulate international finance but given the cost of adjusting domestic regulation to a coherent international standard, they might be willing to give up full coherence and try to include some exceptions in the international accord (ex ante complexity), which might even result in ambiguous rules. Or they might refrain from implementing all regulations from the international accord and create ex post complexity by reducing international regulatory coherence through non-compliance. Even though this will come at the cost of less efficiency in international regulation, it might be individually rational to increase fuzziness if adjusting to coherent international rules is costly.
Empirical validation will be based on qualitative research on the institutional setting of the European Union for the time being but extended to the international arena later on.
Education and Innovation:
The Long Shadow of the Cultural Revolution
Zhangkai Huang, Gordon Phillips, Jialun YANG, Yi Zhang
Human capital is known to encompass the knowledge, skills and talents inherent in individuals, and human resource plays an increasingly important role in economic development. However, it is hard to empirically identify the channel through which human capital affects technological progress. This paper explores the relationship between managerial education and corporate innovation, by looking into the special episode of the Cultural Revolution. The Cultural Revolution was launched in 1966. Blamed for fostering to spread bourgeois values, higher education was suspended and universities were closed. College entrance was not possible until 1978.
The Cultural Revolution deprived an entire generation of Chinese of their opportunities to receive higher education. As a result of the aforementioned political turmoil, 49.21% of CEOs in China now do not have a college degree, in sharp contrast to their western peers. We estimate the human capital cost of this tragedy and find that Chinese CEOs without college degrees spend less in R&D and their firms have fewer patent applications, patent authorizations and patent citations. The result is robust when using the CEO's Cultural Revolution experience as an. instrument for access to college education, and this cannot be explained by changes in beliefs. The result still holds when using an exogenous natural retirement sample. Furthermore, we run a regression discontinuity design using the 1978 policy shock and find that higher education indeed increases the CEO's human capital.
The Social Environment and Property Prices
The University of Hong Kong
At present, partly due to urban development pattern, changes in technology, and people's busy lifestyle, people are always separated from their neighborhoods and communities and detached from their surroundings. Promoting social interaction, fostering weak social ties, building a sense of community, and creating an inclusive and cohesive social environment have therefore become more popular. Good social environments are generally desired by housing purchasers due to quite a few benefits (e.g., beneficial to physical and mental health, subjective wellbeing, and quality of life), so people may be willing to pay for them.
A voluminous body of literature has devoted to teasing out the relationships between the "physical" dimension of the living/neighborhood environment (also known as the built and natural environment) and property prices. Note that the built and natural environment is often described by various measures, such as land use mix, transit accessibility, and proximity to parks. Nevertheless, very limited scholarly attention has been paid to the "social" dimension of the environment, namely social environment. A modicum of the existing literature only focuses on only one aspect of the social environment, namely socio-demographic composition of the neighborhood (e.g., per capita/household income and education attainment). The linkages among other aspects (e.g., sense of community, social cohesion and trust, and social interaction) and property prices have not been examined.
This study makes the first attempt, as far as I know, to explore the linkages between social environment and property prices. Two types of data are involved. The first one is (residential) property transaction data. The other is social environment data, which is obtained from a home-based survey. Econometric methods (e.g., traditional hedonic pricing model, spatial regression, and geographically weighted regression) are used to examine the linkages between social environment measures and property prices.
Finally, we continue to urge that the definition of the real estate neighborhood environment should be broadened. Also we advise that its social dimension advances the knowledge on the relationships between the environment and property prices.
The Long-Run Effects of the Slave Trade
on the Political Violence in Sub-Saharan Africa
Yu ZHANG, Zhicheng Xu, Shahriar Kibriya
Nanjing Audit University
This study attempts to investigate the long-run legacy of the slave trade during 1400-1900 on the contemporary violence in sub-Saharan Africa. By using a geo-coded disaggregated dataset and exploiting within-country variation in slave trade intensity, we document a robust causal relationship between slave exports from a region and the contemporary conflict. Adding into the climate-conflict literature, we also find that the effect of weather shock on the conflict risk can be substantially amplified by the exposure to slave trade. We then carefully discuss the potential underlying channels.
The effect of slave trade on the current economic activities is not a significant channel for the causality. Exposure to slave trade mainly affects the ethnic conflict and riots (but not on other kinds of conflicts) by resulting in intergroup mistrust, local institution deterioration, and a weaker sense of national identity.