2021 Webworkshop: Abstracts

WEBWORKSHOP ON INSTITUTIONAL ANALYSIS
DECEMBER 1-8, 2021
ONLINE

ABSTRACTS

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Policies for Transactional De-Dollarization: A Laboratory Study
Johar ARRIETA Vidal, Kristian López Vargas, David Florian Hoyle, Valeria Morales Vásquez
Central Reserve Bank of Peru

Partial currency substitution typically occurs in small open economies amid economic crises. The local currency loses some of its essential functions, and a foreign currency, usually the US Dollar, becomes widely adopted. Interestingly, the coexistence of the two currencies often persists even after macroeconomic stability returns. This persistence imposes challenges to the conduct of monetary policy. Central banks have responded by applying de-dollarization policies. We extend the model in Matsuyama et al. (1993) and implement an experiment to study the effectiveness of two de-dollarization interventions: (1) taxes on transactions in foreign currency among domestic agents and (2) a reduction in the storage costs of local currency. We contribute to the theoretical literature by characterizing a new circulation regime for small open economies where agents use the foreign currency (FC) solely for international trade purposes and settle domestic transactions exclusively in local currency (LC).

Our experimental evidence suggests that taxes (treatment 1) and storage cost (treatment 2) can foster de-dollarization as they reduce foreign currency acceptance and reinforce the use of local currency. However, we find that the impact of a reduction in the storage costs of local currency is more significant and more robust. It lowered the acceptance rate of FC by more than 20% and increased the acceptance of LC by more than 30%. The tax policy only reduced foreign currency acceptance by a smaller amount and only for encounters with foreign agents.



In China, Did Municipal Officials' Motivation Change After Xi Jinping Took Office? Evidence from Industrial Land Sales, 2007-2018
Kwok Yuen FAN
The Hong Kong Polytechnic University

This paper tends to investigate whether the coming-to-power of Xi Jinping affects the political incentives of municipal leaders. The bureaucratic institution determines how officials allocate resources during their tenure. In China, the promotion tournament motivates local officials to boost economic development. However, the game rule may change after Xi took office in 2012. Xi advocated environmental protection and launched several anti-corruption campaigns. Economic development in developing countries was usually believed to forfeit environmental quality, which became an evaluation criterion for official competence in 2013. Moreover, anti-corruption campaigns may deter local officials from attracting business investments by providing benefits.

This study evaluates municipal officials' political motivation in promoting economic development by examining the local government's industrial land sales. Offering industrial land at a lowered price is a prevalent strategy to attract business investment. By applying a difference-in-difference analysis of over 250,000 industrial land transactions in 279 cities, I document a U-shape relationship between the tenure of municipal leaders and industrial land price. It indicates that local officials have strong incentives to attract investment in the early stage of their tenure, but their motivation declines when they miss the critical promotion time. However, the U-shape relationship no longer existed after Xi took office. The strict enforcement of environmental protection policies helps explain the suspension of cheap conveyance. The investigation of corrupted officials under anti-corruption campaigns also deters municipal officials from selling lands at low prices.

This study will be the first to document the change in the official evaluation system in the Xi's era. It provides evidence of how environmental protection affects officials' motivation to attract business investment. After 2012, the importance of economic growth for political promotion decreased. This finding offers a potential explanation of why China's economic growth has slowed down in the past decade. This paper also expands the literature on corruption, usually regarded as a rent-seeking behavior that damages economic development. However, my study shows that local officials avoid suspicion for corruption under anti-corruption movements, which deter officials from attracting business investment and promoting economic development.



New Institutional Arrangements in the Brazilian Public Prosecutor's Office (Ministério Público) and Their Effects on the Protection of Collective Rights and on the National Justice System
Bruno LAMENHA
Universidade Federal de Pernambuco

The research aims to analyze the role of institutional changes of the Brazilian Public Prosecutor's Office (Ministério Público) in the last 30 years, especially in two particular fields of its final activity: the defense of collective rights (including the environment protection, public health, consumer rights and the defense of indigenous peoples rights) and anti-corruption criminal repression. Since the democratic transition and the 1988 Constitution until the mid-2000s, the most prominent function of this organization in the national justice system was the defense of collective rights. Faced with a demobilized civil society without access to justice, it is hypothesized that Ministério Público reduced transaction costs in judicial protection of collective rights.

In recent years, mainly in the context of large anti-corruption operations from the late 2000s (along the so-called Lava Jato Operation stands out), the literature has pointed out the occurrence of a process of institutional change in Ministério Público discursive profile and performance (AVRITZER and MARONA, 2017). According to this analysis, the organization started to prioritize the activity of anti-corruption criminal repression to the detriment of its role in the defense of collective rights. The possible consequences of this phenomenon are multiple and potentially reach the level of protection of such rights. It is also possible to speculate about the effects of any externalities of this scenario on the dynamics of the Brazilian justice system. The research investigates, therefore, whether this institutional change has significantly impacted the enjoyment of the main collective rights protected by the organization and whether other state actors, or civil society itself, have mobilized to fill this gap.

Interestingly, despite this changes, there have been no significant alterations in the organization’s formal normative framework in the last thirty years. So, this research hypothesizes the possibility of an informal institutional change process (MAHONEY and THELEN, 2010) in Ministério Público. The project also investigates whether the rise of the anti-corruption theme as a synonym for good governance at international and domestic levels (MCCOY and HECKEL, 2001) can be identified as a relevant exogenous factor (PIERSON, 2000) to explain this phenomenon.



Selling Under Financing Frictions: Evidence From Credit Supply Shortfalls
Lucas Serrão MACORIS, Luiz Ricardo Kabbach-de-Castro
INSPER - Institute of Education and Research

Despite empirical evidence showing that firms’ investments decrease during periods of credit supply shortfalls, little is known about how firms can eventually circumvent such financing frictions, thereby attenuating the adverse effects of negative credit supply shocks. In this paper, we show that firms can relieve financing frictions during banking crisis periods by selling equity stakes to outside investors. We examine Mergers and Acquisitions (M&A) transactions worldwide between 1990-2019 and the outcomes of targeted firms ex-post the deal. By exploring cross-sectional variation in the supply of credit induced by banking crises, we find that firms that have higher levels of expiring debt maturities in the year of the credit shock are more likely to become targets in M&A deals. Moreover, we find strong evidence that target firms invest more and issue more debt after the deal relative to other financially constrained firms that did not undergo such transactions. Our results remain robust after controlling for alternative explanations and show that M&As can work as leeway to relieve financing frictions in periods when credit supply frictions are more prevalent.



Corruption as a Presidential Tool: Effects of Mensalão Scandal in Coalition Management in Brazil
Caio MALAQUIAS
Federal University of Pernambuco

How is corruption used as a substitute good for presidential tools in coalition management? Brazil’s coalition-based presidential system works as long as the president uses a set of tools to build a congressional majority and gather parties’ support for his/her legislative agenda.

Luiz Inácio Lula da Silva had no congressional majority when he started his first term (2003-2006) as the President of Brazil. One year after the beginning of his term, he had created 15 more ministries, concentrating their power within his own party members, and built an ideologically diverse coalition. Surprisingly that was a majority coalition. In 2005 the news of the "Mensalão" scandal showed that the president and his party distributed cash payments to coalition members from at least July 2003 to the beginning of the scandal in June 2005.

To create and manage a government majority, the President has a plethora of resources (presidential tools) that s/he must share with the parties. Most known is the power-sharing mechanism of political transfer through cabinet posts (that comes with a high level of patronage). A less famous tool is the legal budgetary transfer that the members of the parliament get to invest in their constituency. In Brazil, the President is the one that controls the disbursement associated with this pork barrel mechanism. Agenda sharing and setting is another big feature of Brazilian Presidentialism since the president can propose bills (among other legislative powers).

This research addresses this dynamic making it clear that the corruption actions were a new presidential tool created to be used as a substitute good for the already existent resources. To do so, I interpret the coalitional management as a firm-like profit model, in which the revenue is a function of the number of votes provided by the coalitional parties, and the presidential costs are a function of 1) the resources transferred to the parties (cabinet posts, pork, corruption), 2) coordination (ideology differences, size of the coalition, moral hazard from corruption).



The Impact of Aid on Bureaucratic Performance
Maria NAGAWA
Duke University

My dissertation investigates the effect of donor funding on bureaucratic performance. Recent studies show that appropriate incentives for bureaucrats in developing countries such as higher wages and training can boost performance, but we still do not understand what role external actors, specifically donors, play in altering bureaucrats’ incentives and performance. Donor projects come with benefit packages for bureaucrats that include higher pay, allowances, and training. However, it is not evident that these projects and the associated benefits are allocated to the most qualified or highest performing bureaucrats and agencies. The ambiguity around the allocation of aid projects likely negatively impacts bureaucratic motivation and effort. First, bureaucrats who are not on donor funded projects are likely to lower their effort. This can be attributed to the following: 1) selection onto donor funded projects is not meritocratic and therefore bureaucrats who are not on donor funded projects perceive the process as unfair; 2) perceptions of unfairness lower public service motivation, an important antecedent of performance in the public sector; and 3) bureaucrats care about extrinsic motivators and when they observe that their peers can earn more for the same effort, they lower their own effort. Secondly, bureaucrats on donor funded projects likely displace effort from core government work to donor funded projects. This is because: 1) multi-tasking occurs and the better funded donor projects take precedence over core government duties; and 2) extrinsic incentives crowd out public service motivation. To test for these effects, I will conduct survey experiments of bureaucrats in Uganda’s central government. Uganda is one of the top recipients of aid in Sub-Saharan Africa and there is significant variation in the distribution of aid projects across agencies and units. This provides an ideal setting for understanding how aid impacts bureaucratic behavior. These dynamics have important implications for the overall effectiveness of the bureaucracies of poor countries where this effectiveness is most needed. Moreover, the study provides a new lens through which we can evaluate the impact of aid on development.



Organized Crime and Political Competition: Electoral Effects of Restoring State Control Over Favelas in Rio de Janeiro
Pedro PESSOA
The University of British Columbia

In this project, I study how criminal groups affect political competition in a democracy that fails to institute the monopoly of violence in parts of its territory. I examine a large pacification policy in Rio de Janeiro that established a permanent police presence in urban territories (favelas) where the state had been absent for decades, reclaiming control over favelas previously ruled by drug syndicates.

In order to maintain territorial control, drug syndicates restrict individuals’ freedom of movement. During electoral campaigns, they create a barrier to electoral competition by selling preferential access to voters in their territories for a few political candidates. This will disproportionally affect candidates without name recognition or access to advertising who rely heavily on face-to-face interactions to get elected.

Using data on electoral outcomes at the level of voting locations from 2008 to 2014, I exploit the staggered implementation of the pacification policy to estimate the causal effect of taking territorial control away from drug syndicates on local elections using differences-in-differences.

In legislative elections, where candidates rely on face-to-face campaigning, the pacification policy increases electoral competition. Using the share of votes received by each candidate in each vote location, I show that the effective number of candidates increased in pacified favelas increased by 40% as a consequence of the pacification policy.

I also document that the incumbent party loses vote share in the elections for the legislative branch due to the pacification program. This effect is not explained by discontent about the policy. In fact, voters in pacified favelas substantially reward the incumbent governor, responsible for implementing the policy, in his re-election bid. I argue that the incumbent party loses votes because re-establishing state control over favelas breaks clientelist ties between politicians and drug syndicates.

By showing that the incumbent party is rewarded in gubernatorial elections for implementing the policy while the program also weakens its capacity to engage in clientelism, my findings suggest that parties that have a comparative advantage in clientelism rather than in public good provision may lose from expanding the monopoly of violence.



“It's Not the What but the How”: Measuring Populism in Political Texts
María Paz RAVEAU, Juan Pablo Couyoumdjian, Eugenio Guzman
Universidad del Desarrollo

Political speeches are powerful tools to influence the electorate and push for specific types of policies. The study of political language helps us to understand the reasoning and motives behind the rhetoric. There has been in the last years a growing concern about the increasing of populist rhetoric in politics, particularly in Latin America. This rhetoric usually erodes the dignity of political opponents, and promotes simplistic and moralized vision of reality, so that populism has been seen as a threat to democratic institutions. From a discursive perspective, populism can be understood as a particular style of political communication, rather than an ideology. Some features that have been related to this style are the simple, direct and emotional language, an antagonizing rhetoric between the "people" and the elites, and a predominant use of the first person, among others. Although populism is also related to contextual factors and institutional quality, this work focus on the features that can be extracted from the speeches.

As for the characterization of populism, previous works have proposed some metrics based on dictionaries. However, dictionary based methods work better when applied to a single country, where the context is held constant. Therefore, there is a lack of non-contextual metrics that can be used in a cross-national analysis. By using Natural Language Processing tools (NLP), we proposed a set of syntactic markers designed to estimate the degree of populism of political texts in the Spanish language. The performance of these markers is subsequently tested against the Global Populism Database (GPD), a human-based coding project which measures the level of populism in the speeches of 215 chief executives from 66 countries across the world. By setting up an OLS model we aim to establish the predictive power of these markers on the GPD score. Our preliminary results suggest that populist language is not as simple as the literature suggests, but it shows a higher proportion of singular first person use, adversative connectors and negative emotions. These would help to identify populist elements in any other political text, regardless the topic. Our work is a contribution from NLP to the study of populism in Latin America´s Spanish speaking countries.



The Long-Term Effects of Financial Aid and Career Education: Evidence from a Randomized Experiment
Laëtitia RENÉE
McGill University

Despite large institutional investments in college-going interventions, little is known about their long-term effects. In this paper, I study the effects of the Future to Discover Project, a randomized experiment that offered 4,500 Canadian high school students the chance to either participate in an intensive career education program, to receive an $8,000 college grant, or both. I perform a unique matching of the experimental data to post-secondary institution records and income tax files to study the effects of the interventions on college enrollment, graduation, and earnings, from the end of high school through age 28. I show that the career education program, by affecting students’ decisions to enroll in four-year colleges, greatly improved their outcomes in the long run. In contrast, I do not find evidence that providing students with additional financial support had any long-term monetary benefits, which is consistent with the fact that a number of grants and loans are already available in Canada. My findings also shed light on the mechanisms explaining the gap in educational attainment by parental income. I show that informational and behavioral barriers together with differences in academic achievement explain most of the gap in four-year college graduation between high- and low-income students.



Combining Social Choice and Matching Theory to Understand Institutional Stability
Ashutosh THAKUR
National University of Singapore

In many organizations, members need to be assigned to certain positions, whether these are legislators to committees, executives to roles, or workers to teams. In such settings, the design of the assignment procedure becomes an institutional choice that is influenced and agreed upon by the very members being assigned. Will these agents seek to reform the assignment procedures by voting in favor of some alternative allocation over their current allocation? I explore this question of institutional stability by bringing together matching theory and social choice. I introduce majority stability---i.e., institutional stability under majority rule---and juxtapose it with other voting rules an organization might use to resolve internal conflict. Institutional stability is undermined by correlation across agents' preferences over positions as this generates envy which, in turn, enables a coalition to form endogenously that is decisive in changing the institution. For extremely correlated preferences, I establish a Chaos Theorem wherein there exists a majority-approved agenda from any matching allocation to any other allocation. Nevertheless, I show that institutions are robust to intermediate correlation across preferences under majority rule, in sharp contrast to plurality rule. Given the prevalence of (super-)majority rules in practice, this suggests why we observe institutional stability.

Insights from the theory are also illustrated empirically, to explain the political economy behind the endogenous evolution of assignment procedures used to allocate elite Indian civil servants to states throughout history from India’s independence till the present.



Land Use Planning Intervention and Delay in Construction Project: A Study of Industrial Land in China
Caiwei ZHANG
The University of Hong Kong

Limited land resources and large demand for land calls for intensive use of industrial land in China. However, delay in land construction and idle land greatly deteriorate land use efficiency. This research focuses on the influence of land use planning intervention on the delay of construction projects of industrial land in China.

All the land in China belongs to the state while land use rights are transferred. To achieve an optimal use of land, local governments usually intervene in land use planning by designing areas to specific industries, or imposing restrictions on potential buyers during land sales. These practices increase the specificity of land and lead to greater degrees of bilateral dependency between the governments and the land users. Since the land value in its secondary use is much lower than the specialised use for which it has been intended, the relations between governments and land users are highly valued. That will give the land users more chances to breach the contracts or make adjustments to original contract terms. Another practice of land use planning intervention is industrial parks. Industrial parks in China are usually designed based on one or several core enterprises. They are successful companies in a particular area and are expected to bring resources to other enterprises in the park and drive the development of the entire industrial cluster. The operating mode of industrial parks establish strong relations between the local governments and core enterprises, which makes delay in construction more acceptable.

Total of 168 land transactions in Shenzhen between 2011-2016 have been investigated. Censored regression is used in this study. Delay in construction is measured by comparing the deadline of project completion stated in the original contracts with the real completion dates. Empirical results show that the more land use planning restrictions imposed on the land, the greater delay in construction there is. And core enterprises of industrial parks delay more than their counterparts. Conclusions of the study are used for policy recommendations on the land contract governance.



Political Connection and Rent-Seeking in Urban Land Market of China: Evidence from State-Owned Firms
Ya ZHAO
The University of Hong Kong

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.