The time-varying independence of Italian peak judicial institutions

The paper investigates the stability of the degree of independence of the judiciary vis à vis both the classical political branches and other independent institutions, such as regulatory agencies, using evidence about the Italian Constitutional Court and the Council of State. Both peak judicial courts feature time varying factors of independence that affect their jurisprudence, especially in the case of the legitimacy review by the Constitutional Court. The less conclusive evidence found in the Council of State related to decisions of independent regulatory authorities might be due to the more complex set of interactions in which the Council operates.     

Deliberation,learning, and institutional change: the evolution of institutions in judicial settings

Institutional change entails institutional design, assessment, and modification, which necessarily take place within the constraints and opportunities afforded by existing institutional arrangements. Viktor Vanberg has made major contributions to our understanding of how institutions evolve. We wish to contribute to this symposium in honor of Vanberg by analyzing how institutions for the management of water institutions in Southern California evolved primarily through the use of the courts as settings for deliberation, learning and institutional change.

Rules versus norms: How formal and informal institutions shape judicial sentencing cycles

Existing research on electoral sentencing cycles consistently finds that elected judges levy longer sentences when they are up for re-election. However, this research finding had previously drawn exclusively on data from four states. Using newly collected sentencing data on seven additional states, we find substantial, and previously un-noted, heterogeneity in the strength of sentencing cycles. This heterogeneity appears to be explained by cross-state differences in informal norm of whether incumbent judges get challenged in judicial elections. We show that variation is explain by the baseline probability of having a challenger and the number of donations per electoral race. That variation, in turn, is not well explained by observable formal electoral institutions.     

Persuasion,binary choice,and the costs of dishonesty

We study the strategic interaction between a decision maker who needs to take a binary decision but is uncertain about relevant facts and an informed expert who can send a message to the decision maker but has a preference over the decision. We show that the probability that the expert can persuade the decision maker to take the expert’s preferred decision is a hump-shaped function of his costs of sending dishonest messages.     

Strategic managerial dishonesty and financial distress

This paper analyzes the effect of stricter sanctions against fraudulent disclosure in an economy where commercial lenders have only an imperfect information about the type of the firm they trade with. In the hybrid Bayesian equilibrium, some managers running fragile firms claim that their firm is solid only to benefit of better commercial credit terms. The default premium charged by the supplier over the normal cost can be interpreted here as an indirect bankruptcy cost. When the sanction gets heavier, both the default premium and the frequency of defaulting firms go up. Under given circumstances, these perverse effects might be offset by a decline in direct bankruptcy costs.     

Culture,institutions, and long-run performance

If institutions are essential for long-run performance, why don't developing countries adopt institutions in developed countries to become rich? In this dynamic model, culture affects a ruler's institutional choice, while culture itself evolves endogenously. Multiple stable steady states are possible, and even similar initial conditions can lead to dramatically different steady states. The state of Qin's unification of China in 221 bc is used to illustrate the model. In one steady state, consistent with what happened in the state of Qin, individuals value material incentives. Qin did not strictly practice the patriarchal clan system advocated by Confucianism. Qin adopted Legalist institutions under which government officials were chosen by merit, and Qin culture was further shaped by Legalism. In another steady state, consistent with what happened in states other than Qin, individuals value loyalty and family values. Those states chose not to adopt Legalist institutions comprehensively, fearing that inconsistencies between culture and institutions could lead to internal rebellions even though institutional reforms would increase their military power. Other cases of how the interdependence between culture and institutions affects performance are also discussed.     

The impact of two different economic systems on dishonesty

Using an artefactual field experiment, this paper tests the long-term implications of living in a specific economic system on individual dishonesty. By comparing cheating behaviour across individuals from the former socialist East of Germany with those of the capitalist West of Germany, we examine behavioural differences within a single country. We find long-term implications of living in a specific economic system for individual dishonesty when social interactions are possible: participants with an East German background cheated significantly more on an abstract die-rolling task than those with a West German background, but only when exposed to the enduring system of former West Germany. Moreover, our results indicate that the longer individuals had experienced socialist East Germany, the more likely they were to cheat on the behavioural task.     

Higher education, elite institutions and inequality

We develop a model of higher education to analyze the effects of elite institutions on individual educational decisions and aggregate labor market outcomes. Elite institutions allow the most talented of a given population to separate themselves from the larger pool of agents enrolled in higher education, and to earn the associated wage premium in the labor market. As elite institutions engage in cream skimming, the returns to publicly accessible education decrease, and enrollment in public higher education declines. The resulting effect on income inequality is ambiguous, since elite education increases income dispersion at the top of the income distribution, and decreases income dispersion at the bottom.     

Uncertainty: individuals, institutions and technology

In an attempt to refine the concept of uncertainty, this paperelaborates an ontology of the social world concentrating onindividuals, institutions and technology. It shows the strongentwinement of the ontological aspects of the conceptualisationof uncertainty and epistemological ones. It highlights the ontologicaland epistemological dimensions of different concepts of uncertainty,such as fundamental uncertainty, procedural uncertainty, ambiguityand weak uncertainty (or risk). It also comments on a few writingsthat distinguish varieties of uncertainty with adjectives suchas ‘ontological’ and ‘epistemological’or ‘epistemic’.     

Taxes,institutions and foreign diversification opportunities

Investors can access foreign diversification opportunities through either foreign portfolio investment (FPI) or foreign direct investment (FDI). The worldwide tax regime employed by the US potentially distorts this choice by penalizing FDI, relative to FPI, in low-tax countries. On the other hand, weak investor protections in foreign countries may increase the value of control, creating an incentive to use FDI rather than FPI. By combining data on US outbound FPI and FDI, this paper analyzes whether the composition of US outbound capital flows reflects these incentives to bypass home and host country institutional regimes. The results suggest that the residual tax on US multinational firms' foreign earnings skews the composition of outbound capital flows — a 10% decrease in a foreign country's corporate tax rate increases US investors' equity FPI holdings by approximately 10%, controlling for effects on FDI. Investor protections also seem to shape portfolio choices, though these results are not robust when only within-country variation is employed.     

Trade, inequality, and the political economy of institutions

This paper investigates the relationship between international trade and the quality of economic institutions. We model institutions as fixed costs of entry, in a framework that has two key features. First, preferences over entry costs differ across firms and depend on firm size. Larger firms prefer to set higher costs of entry, in order to reduce competition. Second, these costs are endogenously determined in a political economy equilibrium. Trade opening can lead to higher entry costs when it changes the political power in favor of a small elite of large exporters, who in turn prefer to install high entry barriers.     

Geography, institutions, and the making of comparative development

While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and, therefore, institutional outcomes. Using non-colonized countries as a control group, I re-examine the theories put forward by La Porta et al. (J Law Econ Org 15(1):222–279, 1999 and Acemoglu et al. (Am Econ Rev 91(5), 1369–1401, 2001. I find strong support for both theories, but also evidence that the authors’ estimates of the impact of colonization on institutions and growth are biased, since they confound the effect of the historical determinants of institutions with the direct impact of geographic endowments on development. In a baseline estimation, I find that the approach of Acemoglu et al. (2001) overestimates the importance of institutions for economic growth by 28 %, as a country’s natural disease environment affected settler mortality during colonization and also has a direct impact on prosperity. The approach of La Porta et al. (1999) underestimates the importance of colonization-imposed legal origin for institutional development by 63 %, as Britain tended to colonize countries that are remote from Europe and thus suffer from low access to international markets.     

Embedded autonomy,political institutions,and access orders

We construct a model of “embedded autonomy,” the idea that the closeness of bureaucrats and business people may lead to growth-promoting policies by the government, though at the risk of leading to crony capitalism. We analyze how the level of monitoring to control corruption and the weight given to the future affect the nature of the possible outcomes. We explore possible tradeoffs between growth and inclusiveness and discuss how our model relates to more general concepts of inclusiveness of institutions, as framed by Acemoglu and Robinson, or the nature of “access orders,” as introduced by North, Wallis, and Weingast.     

The nexus of white collar crimes: shadow economy,corruption and uninsured motorists

This article empirically examines the nexus of three white collar crimes: shadow economy, corruption and uninsured motorists. Whereas the shadow economy–corruption linkage has been studied, the linkages with uninsured motorists have not been formally studied. Results, based on US data and accounting for possible bidirectional causalities, show complementarity between shadow economy and corruption and between uninsured motorists and the shadow economy. The magnitude of the impact of uninsured motorists on the shadow economy is greater than that of corruption. In other findings, shadow economy was lower in most prosperous states and in states that did not impose a sales tax.     

Keynes,the socialisation of trade,and international monetary institutions

While Keynes began formulating his ideas concerning the post-WWII international financial system in the early 1940s, the genesis of these ideas can be traced to his earlier work. The Keynes Plan represents the culmination of his search for adequate institutions that guide economic activity for the public good. The reasons given by Keynes for the establishment of an International Clearing Bank are relevant in the modern international economy, given the current imbalances in international trade. As Keynes argued for the socialisation of investment as a method to achieve full-employment in the domestic economy, he argued for the “socialisation of trade” as a method to achieve international economic balance among nations.     

Cognition,imagination and institutions in demand creation

Formal rationality plays a limited role in human cognition, which originated in the creation of patterns to interpret phenomena and link phenomena with action. The creation of new patterns rests on imagination, not logic, typically stimulated by a perceived inadequacy in established patterns. Internal routines of the brain and external institutions form structures of cognitive capital; the institutions of markets, including money prices, aid the development of consumption capital, which simplifies most choices and provides scope for selective experiment and innovation in creating goods. Such innovation depends on differences between individuals and changes in their circumstances.     

Entrepreneurship,institutions and skills in low-income countries

This paper develops a model of costly firm creation in an economy with weak institutions, costly business environment as well as skill gaps where one of the equilibrium outcomes is a low-productivity trap. The paper tests the implications of the model using a cross-sectional dataset including about 100 countries. Both theoretical and empirical results suggest that to move the economy into a productive equilibrium, complementarity matters: reforms to improve the business environment tend to be more effective in creating productive firms when accompanied by narrowing skill gaps. Similarly, more conducive business regulations amplify the positive impact on firm creation of better education and reduced skill mismatches. To escape a low-productivity trap, policymakers should thus create a pro-business framework and a well-functioning education system.     

Unemployment,institutions, and interdependencies: identifying successful reforms

Labor market reforms, which reduce institutional rigidities, are assumed to be a well-suited approach to lower unemployment. However, it is still not perfectly clear which reforms actually lead to a fall in unemployment. One crucial issue is that reforms do not work in isolation, but have labor market effects which depend on other institutional factors. Such institutional interactions have rarely been considered in empirical macroeconomic studies in a systematic way, mainly due to model uncertainty. As a solution to this problem, a Bayesian model averaging approach is adopted in this paper to identify robust and significant institutional interactions for unemployment. Using a panel data-set for 17 OECD countries from 1982 to 2005, five robust and significant interaction terms are identified, and country-specific reform effects for the institutional indicators are derived.