Political Economy

November 11, 2011
Alberto Alesina of Harvard University, Organizer

Quamrul Ashraf, Brown University, and Oded Galor, Brown University and NBER
Cultural Diversity, Geographical Isolation, and the Origin of the Wealth of Nations

Ashraf and Galor argue that variations in the interplay between cultural assimilation and cultural diffusion have played a significant role in giving rise to differential patterns of economic development across the globe. Societies that were geographically less vulnerable to cultural diffusion benefited from enhanced assimilation, lower cultural diversity, and more intense accumulation of society-specific human capital. Thus, they operated more efficiently with respect to their production-possibility frontiers and flourished in the technological paradigm that characterized the agricultural stage of development. The lack of cultural diffusion and its manifestation in cultural rigidity, however, diminished the ability of these societies to adapt to a new technological paradigm, which delayed their industrialization and, hence, their take-off to a state of sustained economic growth. The theory thus contributes to the understanding of the advent of divergence and overtaking in the process of development. Consistent with the theory, the empirical analysis establishes that 1) geographical isolation prevalent in pre-industrial times (that is, prior to the advent of airborne transportation technology) has had a persistent negative impact on the extent of contemporary cultural diversity; 2) pre-industrial geographical isolation had a positive impact on economic development in the agricultural stage but has had a negative impact on income per capita in the course of industrialization; and 3) cultural diversity, as determined exogenously by pre-industrial geographical isolation, has had a positive impact on economic development in the process of industrialization.

Ernesto Dal Bo and Frederico Finan, University of California at Berkeley and NBER, and Martin Rossi, University of California at Berkeley

Strengthening the State Capabilities: the Role of Financial Incentives in the Call for Public Service

Dal Bo, Finan, and Rossi study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers subsequently were randomized. Screening relied on exams designed to measure applicants' cognitive skills, personality, and motivation. This allowed for the first direct documentation of the trade-offs facing government in the attempt to attract various personal qualities to enhance state capabilities. This study examines the effects of financial incentives on attracting individuals to the public sector, and in so doing presents the literature's first experimental estimates of the elasticity of the labor supply facing the employer. Higher wages attract more able applicants as measured by their IQ, personality, and proclivity towards public sector work. Higher wage offers also increase acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Randomized job offers allow what may be the first causal estimates of the effects of job location characteristics, such as commute distance or prevalence of the rule of law, on job acceptance rates.

Geoffrey Tate and Liu Yang, University of California at Los Angeles
Female Leadership and Gender Equity: Evidence from Plant Closure

Tate and Yang use unique worker-plant matched panel data to measure the impact of female leadership on the relative pay of men and women. They measure differences in the wage changes experienced by newly hired men and women displaced from closing plants. They correct for endogenous selection of both the original and new employer, comparing the wage changes of men and women who move from the same closing plant to the same new firm. They observe larger wage losses among women than men immediately upon reentering the workforce and continuing for the following three years. However, they find a significantly smaller gap between men and women who move to a new firm with a higher fraction of female managers: the magnitude of the extra losses to women is cut in half. The result is robust to including hiring firm fixed effects - a firm pays more equal wages to newly hired workers when it has more women in top positions. These results suggest an important externality to having women in leadership positions: they improve the prospects of other women inside their firms. To the extent that gender wage differences are not driven by differences in productivity, removing these distortions can improve firm value.

Christian Dippel, University of California at Los Angeles
Forced Coexistence and Economic Development: Evidence from Native American Reservations

There are large differences in economic development across Native American reservations today. Dippel asks whether these differences can be explained in part by the forced integration of historically autonomous sub-tribal bands in the nineteenth century. To measure forced integration, he combines anthropological data on intra-tribal political integration in pre-reservation times with historical information on the constituent bands of each reservation. Exploring variation in how politically integrated tribes were before reservations and in how politically integrated reservations were at the time of their formation, he finds that forced integration lowers per capita incomes today by about 30 percent. To account for potential selection into forced integration, he exploits historical mining rushes as a source of exogenous variation in the government's incentive to combine bands onto reservations. The IV strategy confirms the baseline results. Dippel also provides quantitative evidence on the channels through which forced integration affects incomes today.

Michael J. Callen, University of California San Diego, and James Long, University of California at San Diego
Institutional Corruption and Election Fraud: Evidence from a Field Experiment in Afghanistan

Elections in developing countries commonly fail to deliver accountability because of manipulation, often involving collusion between corrupt election officials and political candidates. Callen and Long report the results of an experimental evaluation of Quick Count Photo CaptureĀ—a monitoring technology designed to detect the illegal sale of votes by corrupt election officials to candidatesĀ—carried out in 471 polling centers across Afghanistan during the 2010 parliamentary elections. The intervention reduced vote counts by 25 percent for the candidate most likely to be buying votes and reduced the stealing of election materials by about 60 percent. Additionally, they investigate the role of corrupt institutions in facilitating election fraud by combining: 1) separate fraud measurements at three important stages of the election; 2) rich data on the political connections of key parliamentary candidates; 3) precise geographic coordinates of polling centers; and 4) experimental variation from our evaluation. Interestingly, strong political candidates react to the intervention by substituting fraud spatially and weak candidates react by substituting temporally. The authors explain these results in the context of a theory of corrupt vote transactions in which the capacity of candidates to protect corrupt officials from prosecution determines equilibrium levels of spatial and temporal substitution.

David Rothschild, Yahoo! Research, and Justin Wolfers, University of Pennsylvania and NBER
Forecasting Elections: Voters Incentives versus Expectations

Most pollsters base their election projections on questions of voter intentions by asking "If the election were held today, who would you vote for?" By contrast, Rothschild and Wolfers probe the value of questions that measure voters' expectations by asking: "Regardless of who you plan to vote for, who do you think will win the upcoming election?" They demonstrate that polls of voter expectations yield consistently more accurate forecasts than polls of voter intentions. A small-scale structural model reveals that this is because oneis polling from a broader information set, and voters respond as if they had polled ten of their friends. This model also provides a rational interpretation for why respondents' forecasts are correlated with their expectations. The authors use their structural model to extract accurate election forecasts from non-random samples.

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