Measuring political information rents: Evidence from the European agricultural reform

This paper develops a method to estimate information rents – the difference between the actual compensation and the true willingness to accept – of losers of a reform who receive a monetary compensation. Our method explicitly accounts for survey respondents' reluctance to reveal a willingness to accept which is smaller than the actual compensation. We apply our approach to the case of the 2005 European agricultural reform using uniquely gathered survey data from farmers in Lower Saxony, Germany. We find empirical indications for strategic misreporting. Correcting for these effects with a structural model, we find that information rents are in the order of up to 14% of total compensation paid. Moreover, we show that the reform could not have been implemented distinctly cheaper by conditioning compensation schemes on observable factors.     

The effect of regulating political connections: Evidence from China's board of directors ban

There is a great deal of variation in how countries regulate the relationships between politicians and public-traded firms, but little evidence about how such policies affect firm performance. In 2013, China passed a new regulation that banned politicians from serving on the boards of directors of companies. Using a novel data set that links board members, government officials, and forced resignations, I estimate the effect of the policy on firm performance and stock returns. I find that the loss of a high-level politician significantly reduces a firm’s cumulative stock return and future profits. The effect is driven by officials from government-controlled public sectors and is larger when the firm is in low-marketized areas. The analysis provides important evidence about the efficacy of a commonly used policy tool for reducing political influence in the private sector.     

Economic reform, voting, and local political intervention: Evidence from India

This paper uses the Indian tariff reforms of the early nineties to estimate how voters hurt by economic reforms respond. Regions more hurt by the tariff reform increased their support for both the party that initiated their suffering and parties with similar preferences in favor of poverty-centric policies. This response is surprisingly sophisticated, where voters did not simply punish incumbents for negative income shocks and correctly discounted initial anti-reform stances by opposition parties that later turned out to be false. Furthermore, the strength of this voting response varied with both geography and local political incentives, suggesting that the economic effects of reforms might vary substantially in large and decentralized democracies.     

Does contracting out increase the efficiency of government programs? Evidence from Medicaid HMOs

State governments contract with health maintenance organizations (HMOs) to coordinate medical care for nearly 20 million Medicaid recipients. Identifying the causal effect of HMO enrollment on government spending and health care quality is difficult if, as is often the case, recipients have the option to enroll in a plan. To estimate the average effect of HMO enrollment, this paper exploits county-level mandates introduced during the last several years in the state of California that required most Medicaid recipients to enroll in a managed care plan. The empirical results demonstrate that the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no corresponding improvement in infant health outcomes. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.     

Estimating the value of political connections in China: Evidence from sudden deaths of politically connected independent directors

This paper estimates the value of political connections by examining stock price reactions to sudden deaths of retired government officials who were acting as independent directors of private firms in China from 2003 to 2012. Employing an event study, we find that, if a private firm loses political connections because of the sudden death of an independent director who was previously a government official, its stock price drops 3.61% on average within ten trading days. After the loss of political connections, we find that it is possible but infeasible for a private firm to reestablish political connections with the government in a short period of time. Moreover, the sudden death of a retired government official leads to a reduction in the economic benefits (e.g., bank loans, tax preference, and government subsidies) obtained by a private firm, which provides a reasonable explanation for the negative stock price reaction after losing political connections.     

The quality-access tradeoff in decentralizing public services: Evidence from education in the OECD and Spain

Decentralized delivery of public services should enhance constituents’ ability to hold politicians accountable and improve public service outcomes, according to theory. Yet, decentralization has not consistently yielded those improvements. This paper uses a novel cross-country panel from the OECD to show that decentralization generally improves students’ access to education, but in so doing, it creates congestion effects which diminish the overall quality of education that students receive. We argue that this is partially explained by the incentives of sub-central governments upon receiving their new authority. Sub-central governments are more incentivized than national ones to pursue policy improvements that are more visible and quicker to achieve, even when they are costly – like improving access – over improvements that are less visible and take longer to achieve – like increasing quality. Decentralization should therefore result in positive effects on education access and negative on quality, consistent with our findings. We directly test the impact of political incentives on responses to decentralization by exploiting the timing of education decentralization in Spain (1980–99), and variation in the political assertiveness of regional governments, using generalized difference-in-differences and synthetic controls. As predicted, the magnitude of decentralization's effects is greater for assertive regions, which are most incentivized to prioritize high visibility, costly policies.     

Effect of political connections on corporate financial constraints: new evidence from privatization in China

Taking advantage of the SOEs privatization events in China, our research looks to identify the causal effect of political connections on corporate financial constraints. In a difference-in-differences framework, we demonstrate that after the transfer of control from state to private owners, privatized SOEs hoard more cash, save more cash from incremental cash flow, and exhibit higher cash flow sensitivity of investment.     

The impact of political cycle: Evidence from coalmine accidents in China

This paper examines the impact of political cycle on coalmine accidents in China. The political cycle is formed by the major local meetings of legislative bodies held every year in all provinces of China. This is because the government has a strong incentive to maintain social stability during the meetings and to focus on economic growth in other times. We test how such cycles affect coalmine fatality using monthly data at the provincial level between 2000 and 2010. We find that the number of accidents and casualties were significantly lowered during the local events of “two sessions” after controlling for other time fixed effects. The temporary reduction of accidents seemed to have been achieved by controlling production rather than by improving safety measures. The magnitude of the cycle for accidents is enlarged in provinces where media exposure is stronger and where the vice governor in charge of safety is faced with a possible extension to another term in the current post.     

The redistributive effects of political reservation for minorities: Evidence from India

We examine the impact of political reservation for disadvantaged minority groups on poverty. To address the concern that political reservation is endogenous, we take advantage of the state-time variation in reservation in state legislative assemblies in India generated by national policies that cause reservations to be revised and the time lags with which revised reservations are implemented. Using data on sixteen major Indian states for the period 1960-2000, we find that increasing the share of seats reserved for Scheduled Tribes significantly reduces poverty while increasing the share of seats reserved for Scheduled Castes has no impact on poverty. Political reservation for Scheduled Tribes has a greater effect on rural poverty than urban poverty, and appears to benefit people near the poverty line as well as those far below it.     

Women's political leadership and economic empowerment: Evidence from public works in India

Despite recent advances, women trail men in political participation, especially in developing countries where the long-term economic benefits from empowering women politically have not been well-researched. We use data from 163 villages of 12 main Indian states to explore whether requiring that village leadership positions be held by women (political reservation) affected uptake of economic opportunities via the National Rural Employment Guarantee Scheme. Reservation triggered increases in women's demand for work, program participation, and access to financial services that were sustained beyond the period of female political leadership. Enhanced female participation in program oversight, civic engagement, and electoral participation are plausible channels for such effects and political and economic empowerment seem to be complementary.     

Provincial economic performance and underpricing of IPOs: Evidence from political interventions in China

We examine the underpricing of 2,131 Chinese initial public offerings (IPOs) between 2005 and 2017. The results indicate that state-owned enterprises (SOEs) controlled by the local government (local SOEs) offer significantly higher underpricing when they go public than SOEs controlled by the central government and non-SOEs do. This phenomenon is evident for local SOEs from less developed provinces, after controlling for the direct effect of regional economic performance. These results suggest local government officials underprice initial public offerings to make regional companies successfully go public to promote the regional economy.     

Outsourcing of peripheral services: Evidence from Spanish manufacturing plant-level data

In this paper we empirically explore outsourcing decisions of peripheral services using information from a data set of 926 Spanish manufacturing plants. We find that increases in outsourcing of peripheral services are positively correlated with increases in the plant׳s market share as well as increases in product market competition and product prices. These findings are robust to controlling for whether plants belong to single-plant or multi-plant firms. These patterns are consistent with a strategic shift in the allocation of attention to core manufacturing activities, and are at odds with traditional TCE and PRT theories of vertical integration.     

The influence of political fragmentation on public enterprises: Evidence from German municipalities

This study investigates the influence of politically fragmented municipal councils on the investment behaviour of municipally owned public enterprises. We argue that common public choice theories can also be applied to public enterprises. For our observation period (2002–2014), we use a data set encompassing 8,685 municipally owned enterprises subject to commercial accounting located in 3,237 municipalities drawn from all 13 German federal area states. On average, our results point to a negative effect of fragmentation on investment per capita, supporting a war of attrition or veto player approach. Effects are heterogeneous among different sectors, possibly due to higher visibility to voters. Thus, veto players might actively try to block prestigious and publicly perceivable investment projects to hinder their opponents. Political budget cycles additionally influence this effect for some sectors. However, testing non-linearities reveal that the common-pool hypothesis cannot be completely ruled out.     

Theoretical motives of corporate cash holdings and political connections: firms level evidence from a developing economy

In this paper, we revisit the theoretical motives of corporate cash holdings while concentrating on the effect of political connections. In particular, we postulate two competing hypotheses for the effects that political connections can have on cash holdings: ‘substitution effect hypothesis’ and ‘complementary effect hypothesis’. Using the data on Pakistani firms over the period 2002–2010, we find that connected firms hold significantly larger cash reserves than their non-connected counterparts, thus confirming the ‘complementary hypothesis’, which suggests that agency problems lead connected firms to accumulate large amount of cash. Further, this effect is found to be more pronounced in dictatorial as opposed to democratic regimes indicating the presence of higher degrees of political patronage in that period. Finally, we also find differences in the complementary effect based on firm characteristics. Our results suggest that the firm size and leverage have increasing effects on the cash holdings of connected firms, contrary to the mainstream literature standpoint.     

War and the political zeitgeist: Evidence from the history of female suffrage

Despite the upheaval associated with warfare, empirical evidence linking conflict with institutional development is limited. This paper examines the hypothesis that international wars accelerated democratization by fostering political inclusion. Employing survival analysis, I find that during the 20th century, nations engaging in external conflict were more than twice as likely to extend the franchise to women in the post-conflict period, even after controlling for other commonly cited determinants of suffrage adoption. I explore several potential mechanisms for this association and find evidence consistent with stories which connect war with increased national unity, ideological fervor, and international posturing. Finally, examining conflict-induced changes in sex ratios and female labor force participation suggests that the underlying determinants of suffrage expansion at the national and sub-national level differ.     

Growing up in a civil war and political participation: Evidence from Guatemala*

Guatemala experienced a 36-year-long civil war from 1960 to 1996. I use this event to understand whether growing up in an area of political violence has any impact on future political participation. I combine data from the distribution of the number of human rights violations during Guatemala's civil war with nationally representative data on political participation from the 2001 Living Standard Measurement Survey. Results suggest that exposure to conflict during youth affects political participation in adulthood. Exposure to conflict has a small negative association with formal political engagement and it has no effect on community participation. The results also indicate a negative relationship between growing up in an area of political violence and trust in the judicial system as adults.     

The financial costs of political uncertainty: Evidence from the 2016 US presidential elections

The victory of Mr. Donald Trump came as a surprise to a wide range of market participants. Some of the elements of his economic plan were envisaged to affect all US sectors. This paper assesses the reactions of disaggregated US stock market to the 2016 US presidential election results, and possible deregulation that is to follow after his inauguration. We find that the different US sectors were significantly and varyingly influenced by the election result, and were greatly reactive during the days after the inauguration. This underscores that uncertainty tends to persist and even rises since the President-elect took office.     

The cohort effect of political change on language speaking: Evidence from Hong Kong

It has been proven that language is a symbol of culture and politics. This study investigates the cohort effect of Hong Kong's handover on the language spoken in adulthood based on the 2006 and 2011 Hong Kong population censuses. We find that Mandarin is more likely to be used by Hong Kong natives who were exposed to the transfer of sovereignty over Hong Kong in 1997 during their school-age years, especially the generation that were exposed during their primary-school years. This cohort insisted on speaking Mandarin, even when the political environment changed from 2006 to 2011. Our evidence reveals that the political change that occurs during one's school-age years has a long-term impact on an individual's behaviour in adulthood. Further discussion indicates that exposure to political change such as regime transfer during school-age years impacts an individual's national identity.     

Effects of regulatory burden and corruption on firm performance: Evidence from Moldova

Firms in Moldova face a high level of regulatory burden, as proxied by the number of inspections by public authorities. At the same time, they face high levels of corruption. We examine the effect of frequent inspections on four measures of firm performance: labour and total factor productivity, and levels of tangible and intangible assets. We also investigate how corruption affects the relationship between inspections and firm performance. We perform panel data analysis using firm-level administrative data and survey data from Moldova in 2005–2015. The results show that inspections and corruption each affect firm productivity negatively, but corruption moderates the negative effect of inspections. We also find that inspections and intangible assets are positively correlated, but this correlation is weaker for higher levels of corruption. Finally we examine whether these results differ by industry, firm size and ownership types. Inspections and corruption affect medium and large firms, and state-owned enterprises differently from micro and small firms and private firms respectively.     

Crowding out of private support to the elderly: Evidence from a demogrant in Mexico

To examine whether private support dampens or reinforces the impact of redistributive policies, this paper estimates the effect of an exogenous increase in the income of the elderly, caused by a recent demogrant in Mexico, on the amount of private transfers they receive. My instrumental variables strategy overcomes the endogeneity of income that typically contaminates estimates and, unlike related studies that use natural or policy experiments in reduced-form estimations, it yields evidence of a positive bias. This suggests that an unobservable characteristic is positively correlated both with income and private transfer receipt and that treating income as exogenous could lead to an underestimation of the crowding out effect. In contrast, my preferred estimates are negative, significant and not far from minus one, implying an almost complete crowding out. My findings suggest that private transfers could neutralize the changes in the public transfers for the elderly.