Defining governance matters: A factor analytic assessment of governance institutions

This paper produces a new set of governance indices that enable estimation of the marginal economic benefits of particular categories of governance. The indices are constructed using a factor model, estimated on forty perceptions-based governance variables from eleven data sources. In contrast to previous research, a unified statistical framework is used to determine the number of governance indices to create, the conceptual content of each index, and the relative importance each has in accounting for the observable data. The four indices are labeled market infrastructure, downside governance risk, order, and civil liberties. Confidence intervals are calculated for each country, for each index to aid in the comparison of scores. As an application, the indices are used as explanatory variables in cross-country income regressions. Instrumental variables estimates show that market infrastructure and civil liberties both exert statistically and economically significant effects on per capita income, controlling for geography (malaria risk) and international trade.     

Corporate governance as religion

This paper, examining five different corporate governance topics, considers whether certain corporate governance reforms—perhaps because of the passion with which their advocates advance them—have increasingly become articles of faith rather than matters of intellectual analysis and empirical evaluation. The paper proceeds on the premise that good corporate governance is very important, but that it is not always easy to determine whether any particular proposed reform actually constitutes good or bad corporate governance. It concludes that sound corporate governance reforms can only be forged on the anvil of close and rigorous examination—wherever that examination might lead.      

Financial development and governance relationships

In any country, financial development has a huge influence on country’s economic developments. Financial development strengthens financial stability of countries and enhances deep and broad access to capital and financial services by improving efficiency of financial markets and effectiveness of financial intermediation. The purpose of this study is to identify the relationships between various aspects (pillars) of financial development and dimensions of governance for countries listed in the Financial Development Index of the World Economic Forum. The Index provides a score for the breadth, depth and efficiency of 62 of the world’s leading financial markets. The study utilized the data from the World Economic Forum presented in the financial development report (2012) and attempted to model the relationships between various pillars of financial development and dimensions of governance by structural equation modelling (SEM) methodology. The study used the Worldwide Governance Indicators for year 2012 of the World Bank as the measure of governance. According to the SEM results, there seems to be a significant positive relationship between governance and financial development. Thus, as governance is enhanced, we may expect financial development to strengthen as well.     

The case for global governance

This article looks at the concepts of government, governance and sovereignty. The author traces the origins of various systems of order to Westphalia (1648) and highlights how they affect our world today through the Multilateral System, the post-WWII heir to the Westphalian System. Drawing upon his experience as a professor and former ambassador to the OECD, he suggests that exploring better ways of managing our world and seeking alternative methods of global governance may be overdue given the current social, economic and environmental problems. The article closes with a futurist's wagering on the imminence of global governance.     

Employee ownership and internal governance

This paper is designed to counter Oliver Williamson's hypothetical ‘Peer Group’ model of organization with a discussion of three prosperous populations of employee-owned firms: worked-owned scavenger companies, taxi cooperatives, and professional partnerships such as the large law firm. It will be shown here that these firms are formed, endure and prevail over their competition for reasons that Williamson, more than anyone else, has taught us to appreciate. In particular, this paper will argue that the metering problems and human asset considerations that are so prominently featured in Williamson's work are crucial for understanding the success of these firms.     

公司治理与国有企业改革

公司制改革加快了现代企业制度建设的进程，但是公司治理结构不完善是一个亟待解决的问题。目前要从维护中小股东合法权益，逐步建立定位合理和投资者信任的独立董事制度，从制度上保证发挥董事会作用以及建立健全董事、经理的束激机制四个方面，完善上市公司的治理结构。     

Wage-setting institutions and corporate governance

We present a model in which wage-setting structures explain cross-country variation in corporate governance. The model predicts a nonmonotonic relationship between the level of centralization in wage-bargaining institutions and the levels of firm ownership concentration and investor protection legislation. Low and high degrees of centralization yield less concentrated ownership and more investor protection than intermediate degrees. Like recent research, this paper highlights labor as a key constituent in shaping corporate governance. However, our theory can resolve an important puzzle this research confronts, namely, why Scandinavian countries with higher than average labor strength also have higher than average investor protection legislation.     

Corporate governance following mass privatization

Using vouchers to privatize state-owned firms was an innovative but controversial aspect of transition. In the Czech Republic, voucher privatization created a large group of minority shareholders who coexisted with large shareholder–managers who controlled firms. Critics allege that the structure of shareholdings and regulatory failures allowed pervasive theft of corporate assets, much of it financed by irresponsible bank lending, and led to a financial crisis and an economic downturn. I argue that neither anecdotal evidence of managerial malfeasance nor the theories of tunneling and looting provide strong evidence for this view of corporate governance in the Czech Republic. A lack of small shareholder protection seems to have imposed small costs on the economy, and it may have facilitated rather than hampered the restructuring of firms.     

Adverse selection and corporate governance

This paper examines the impact of corporate governance on the adverse selection component of the bid-ask spread of stocks listed on the Singapore Exchange. These companies have been identified by Credit Lyonnais Securities Asia (CSLA) with the highest level of corporate governance among 25 emerging markets. We measure corporate governance by several criteria: discipline, transparency, independence, accountability, responsibilities, fairness, and social awareness. The results show that corporate governance has an inverse relationship with adverse selection. However, only the transparency dimension exhibits a significant inverse relationship with adverse selection. In addition, Government-Linked Companies (GLCs) are shown to have a smaller adverse selection component than non-GLCs.     

Party governance and ideological bias

Informed opinions are essential to a good functioning of democratic institutions. Political intermediaries, such as parties, make up the free-riding voters' informational deficit. Public opinion and voting outcomes are shaped by those parties whom the voters trust.The credibility of parties is fashioned by their internal organization. The paper investigates one aspect of party governance, namely the allocation of control rights over platform design. The party's leadership either selects a platform, or simply recommends a platform for adoption by the rank-and-file. Under the latter (democratic) institution, the leadership has no formal authority, but for informational and procedural reasons may still have substantial real control over the final platform, depending on the congruence between leadership and rank-and-file. In particular, the rank-and-file is generally more concerned with the ideological content of the platform than the leadership, who is motivated by the benefits from electoral office. The paper argues that in centrist parties, the high congruence of interest between the rank-and-file and office seekers leads to systematic rubberstamping of the leadership's electoral platforms; the resulting weak internal control mechanism hurts party credibility.     

Introduction to the Symposium

This file surveys recent contributions to auction theory and explores the implications they contain for future research in the field. I would like to express my deep appreciation to Roko Aliprantis for offering me the opportunity to edit this special collection of papers on auction theory, and for offering me support and guidance on numerous occasions along the way.     

Good governance and good aid allocation

We model the aid allocation process as a rent-seeking contest between two countries and investigate the effects of differing allocation rules on recipients' behavior in a simple framework. We investigate the aid allocation mechanism design that attempts to increase the governance quality of potential recipient countries: the potential recipients spend costly resources improving governance, while the donor country allocates the fund based on their governance quality. The paper compares two mechanisms: one uses a simple winner-takes-all tournament to award the entire available purse to the country with the best governance; while under the other aid is distributed among countries in proportion to their governance qualities. The paper shows the second mechanism outperforms the first only if competing countries are sufficiently asymmetric. Moreover, the recipient who is most effective in governance – and stands to benefit the most from development assistance – has interests opposite to those of the donor. In addition, the paper shows that if the donor country allocates the fund based on both governance and the levels of poverty, it may result in a poverty trap: the leaders of potential recipient countries deliberately allocate funds away from the poorest so as not to better their position in order to receive more aid.     

Foreign aid and governance in Africa

This paper investigates the effect of foreign aid on governance in order to extend the debate on foreign aid and to verify common positions from Moyo’s ‘Dead Aid’, Collier’s ‘Bottom Billion’ and Eubank’s ‘Somaliland’. The empirical evidence is based on updated data from 52 African countries for the period 1996–2010. An endogeneity robust instrumental variable Two-Stage-Least Squares empirical strategy is employed. The findings reveal that development assistance deteriorates economic (regulation quality and government effectiveness) and institutional (corruption-control and rule of law) governance, but has an insignificant effect on political (political stability, voice and accountability) governance. While, these findings are broadly in accordance with Moyo and Collier on weak governance, they neither confirm the Eubank position on political governance nor the Asongu stance on the aid-corruption nexus in a debate with Okada and Samreth. The use of foreign aid as an instrument to influence the election and replacement of political leaders in Africa may have insignificant results. It is time to solve the second tragedy of foreign aid and that economists and policy makers start rethinking the models and theories on which foreign aid is used to influence economic, institutional and political governance in recipient countries.     

Foreword to the Symposium

This paper investigates a number of aspects of Piero Sraffa's early philosophical thinking by placing him within the historical materialist tradition of reasoning about the relation of ideas to the historical process. It first distinguishes Alfred Marshall's views about the historical development of ideas by addressing Marshall's responses to the criticisms of William Cunningham of the English Historical School. Marshall's concept of economics as a universal engine of discovery was rejected by Sraffa in his early writings. Sraffa's critique of Marshall is then argued to lead to two early philosophical commitments on Sraffa's part: that deductivist modes of explanation are inappropriate in economics and that economics aims to explain the underlying structures of causal interaction that had been the concern of the classical political economists. The paper closes with brief remarks on how Sraffa's later philosophical thinking might be approached.     

Models of governance for converging technologies

The development of converging technologies (CTs) closely interacting with the human body might become one of the great challenges for science and technology governance in the years to come. This paper compares the visions and recommendations on CT policies by Roco and Bainbridge with those of the high-level expert group in the EU (authored by Nordmann), and documents differences in their respective conceptualizations of uncertainty, complexity and the future. While Roco and Bainbridge argue for the urgency of technological development, Nordmann recommends a thorough social process of upstream public participation in the framing of the technological goals to be achieved. However, a tension is seen in the Nordmann report regarding the role of public resistance in the development of technology.