Political Economy

October 23, 2015
Alberto Alesina of Harvard University, Organizer

Filip Matějka, CERGE-EI, and Guido Tabellini, IGIER

Electoral Competition with Rationally Inattentive Voters

This paper studies how voters optimally allocate costly attention in a model of probabilistic voting. The equilibrium solves a modified social planning problem that reflects voters' choice of attention. Voters are more attentive when their stakes are higher, when their cost of information is lower and prior uncertainty is higher. Matějka and Tabellini explore the implications of this in a variety of applications. In equilibrium, extremist voters are more influential and public goods are under-provided. The analysis also yields predictions about the equilibrium pattern of information, and about policy divergence by two opportunistic candidates. Endogenous attention can lead to multiple equilibria, explaining how poor voters in developing countries can be politically empowered by welfare programs.

Alberto Bisin, New York University and NBER, and Thierry Verdier, Paris-Jourdan Sciences Economiques

On The Joint Evolution of Culture and Institutions

What accounts for economic growth and prosperity? What stands at their origin? Recent literature typically searches for single univariate causal explanations: institutions, culture, human capital, geography. In this paper Bisin and Verdier provide instead a first theoretical modeling of the interaction between different possible explanations for growth and prosperity (in particular, between culture and institutions) and their effects on economic activity. Depending on the economic environment, culture and institutions might complement each other, giving rise to a multiplier effect, or on the contrary they can act as substitutes, contrasting each other and limiting their combined ability to spur economic activity. By means of examples the researchers show how the dynamics display non-ergodic behavior, cycles, and other interestingly complex phenomena.

Oded Galor, Brown University and NBER, and Marc Klemp, Brown University

Roots of Autocracy

In this paper, Galor and Klemp explore the origins of the variation in the prevalence and nature of political institutions across the globe. The research advances the hypothesis and establishes empirically that variation in the inherent diversity across human societies, as determined in the course of the exodus of Homo sapiens from Africa tens of thousands of years ago, shaped the nature of political institutions across regions and societies. The study establishes that, while human diversity has amplified the beneficial effects of institutions, mitigating the adverse effects of non-cohesiveness, its simultaneous contribution to heterogeneity in cognitive and physical traits has fostered the scope for domination, leading to the formation and persistence of autocratic institutions. A larger degree of human diversity within societies diminished cohesiveness and therefore stimulated the emergence of institutions that have mitigated the adverse effects of non-cohesiveness on productivity. However, the dual impact of human diversity on the emergence of inequality and class stratification have diverted the nature of the emerging institutions towards extractive, autocratic ones. Developing a novel geo-referenced dataset of genetic diversity and ethnographic characteristics among ethnic groups across the globe, the analysis establishes that genetic diversity contributed to the emergence of autocratic pre-colonial institutions. Moreover, the findings suggest that the contribution of diversity to these pre-colonial autocratic institutions has plausibly operated through its dual effect on the formation of institutions and class stratification. Furthermore, reflecting the persistence of institutional, cultural, and genetic characteristics, the spatial distribution of genetic diversity across the globe has contributed to the contemporary variation in the degree of autocracy across countries.

Marianne Bertrand, University of Chicago and NBER; Robin Burgess and Guo Xu, London School of Economics; and Arunish Chawla, Government of India

Determinants and Consequences of Bureaucrat Effectiveness: Evidence from the Indian Administrative Service

Do bureaucrats matter? This paper studies high ranking bureaucrats in India to examine what determines their effectiveness and whether effectiveness affects state-level outcomes. Combining rich administrative data from the Indian Administrative Service (IAS) with a unique stakeholder survey on the effectiveness of IAS officers, Bertrand, Burgess, Chawla, and Xu (i) document correlates of individual bureaucrat effectiveness, (ii) identify the extent to which rigid seniority-based promotion and exit rules affect effectiveness, and (iii) quantify the impact of this rigidity on state-level performance. The researchers' empirical strategy exploits variation in cohort sizes and age at entry induced by the rule-based assignment of IAS officers across states as a source of differential promotion incentives.

Luigi Guiso, Einaudi Institute for Economics and Finance; Gabriele Gratton, University of New South Wales; Claudio Michelacci, CEMFI; and Massimo Morelli, Columbia University and NBER

From Weber to Kafka: Political Activism and the Emergence of an Inef´Čücient Bureaucracy

A well functioning bureaucracy can promote prosperity, as advocated by Max Weber. But when bureaucracy gets jammed, it causes stagnation, as described by Franz Kafka. Gratton, Guiso, Michelacci, and Morelli propose a dynamic theory of the interaction between the production of laws and the efficiency of bureaucracy. When bureaucracy is inefficient the effects of politicians legislative acts are hard to assess. Therefore, incompetent politicians have strong incentives to pass laws to acquire the reputation of skill-full reformers. But too many, often contradictory reforms can in turn lead to a collapse in bureaucratic efficiency. This interaction leads to the existence of both Weberian and Kafkian steady states. A temporary surge in political instability, a strong pressure for reforms by the public, and the appointment of short-lived technocratic governments can determine a permanent shift towards the Kafkian nightmare steady state. Using micro-data for Italy, Gratton, Guiso, Michelacci, and Morelli provide evidence consistent with one key prediction of the theory: the relative supply of laws by incompetent politicians increases when legislatures are expected to be short.

Sharun Mukand, University of Warwick, and Dani Rodrik, Harvard University and NBER

The Political Economy of Liberal Democracy (NBER Working Paper No. 21540)

Mukand and Rodrik distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. The researchers develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. The authors discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.

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