Political Economy

Members of the NBER's Political Economy Program met in Cambridge on October 11. Research Associates Ernesto Dal Bó of University of California, Berkeley and Francesco Trebbi of University of British Columbia organized the meeting. These researchers' papers were presented and discussed:

Meera Mahadevan, University of California, Santa Barbara

The Price of Power: Costs of Political Corruption in Indian Electricity

Political capture of public electricity provision may benefit targeted consumers through informal subsidies. However, this causes leakages in utility revenues, inhibiting their ability to reliably supply electricity to the broader consumer base. Using a close-election regression discontinuity design, and a confidential dataset on the universe of geo-coded electricity bills from a large state in India, Mahadevan shows that billed electricity consumption is lower for constituencies of the winning party after an election. However, actual consumption, as measured by satellite nighttime lights, is higher for these regions. He finds new evidence to explain this discrepancy - politicians illicitly subsidize their constituents by systematically allowing the manipulation of electricity bills. To measure changes in welfare, Mahadevan develops a method to estimate demand elasticities in the presence of data manipulation, by leveraging exogenous variation from policy-led price changes and predictive analytics. The net deadweight loss Mahadevan estimates is large enough to power 3.7 million rural households over an electoral term.

Avinash Dixit, Princeton University

"We haven't got but one more day" - The Cuban Missile Crisis as a Dynamic Chicken Game

Brinkmanship is a "threat that leaves something to chance" – creating a risk of catastrophe that is high enough to deter the adversary but low enough to be acceptable to oneself. The Cuban missile crisis is offered as a classic example. Dixit argues that in that crisis both sides lost control over the risk. He builds a dynamic model of a chicken game, and use parameters based on historical narrative studies. He then finds that over the thirteen days of the crisis, the probability of a nuclear war got as high as 60%.

Michael Callen, University of California, San Diego and NBER; Saad Gulzar, Stanford University; Soledad A. Prillaman, University of Oxford; and Rohini Pande, Yale University and NBER

Does Revolution Work? Post-Revolutionary Evolution of Nepal's Political Classes

Decentralization bears the promise of more representative and accountable democratic institutions. In many countries, particularly new and developing democracies, this vision of decentralization has yet to be realized, instead yielding more extractive and corrupt institutions. Can new democracies generate institutions that are both representative and effective? As one of the worlds most ambitious decentralization processes, Nepal's recent political transformation provides a useful laboratory to evaluate the consequences of decentralization in a new and developing democracy. In 2015, in the wake of the decade-long Maoist People's War, Nepal abolished its 240-year-old monarchy and established a new constitution formalizing Nepal's political structure as a federal republic. The 2017 local elections in Nepal innaugurated this decentralization process, ushering into elected office more than 30,000 newly elected representatives. Using a census of 3.68 million Nepalis across eleven districts, party nomination lists, and data on the universe of candidates and elected politicians, Callen, Gulzar, Prillaman, and Pande provide a comprehensive documentation of patterns of political selection in Nepal's first local elections. They show that politicians are positively selected relative to both the population and their respective clans, being significantly more educated and richer than the population they represent. Politicians are also generally representative of the population in terms of Caste and gender. This representativeness, however, is largely the result of political reservations. Furthermore, elitism does not substantially drive political selection: belonging to historically elite castes is only weakly correlated with being a candidate in these elections and this relationship is absent among candidates from the Maoist party, consistent with Maoist ideology. Callen, Gulzar, Prillaman, and Pande then compare these recent patterns of selection with electoral outcomes from local elections conducted under monarchic rule in 1992. These historic elections resulted in relatively less representative institutions, where almost no women and few Dalits gained representation. Remarkably, modern Nepal bears a closer resemblance to consolidated Western democracies, achieving both meritocratic and generally inclusive political institutions. The researchers argue and suggestively demonstrate that this is in part the result of Maoist influence on the Constitutional process.

Abhay Aneja, Stanford University, and Carlos Avenancio, Indiana University

The Effect of Political Power on Labor Market Inequality: Evidence from the 1965 Voting Rights Act

A central concern for racial and ethnic minorities is having an equal opportunity to advance group interests via the political process. There remains limited empirical evidence, however, whether democratic policies designed to foster political equality are connected causally to social and economic equality. Aneja and Avenancio examine whether and how the expansion of minority voting rights contributes to advances in minorities' economic interests. Specifically, they consider how the political re-enfranchisement stemming from the passage of the 1965 Voting Rights Act (VRA) contributed to improvements in the relative economic status of black men during the 1960s and 1970s. Using spatial and temporal variation in federal enforcement of the VRA, the researchers document that counties where voting rights were more strongly protected experienced larger reductions in the black-white wage gap between 1950 and 1980. Aneja and Avenancio's analysis of mechanisms suggests that minority political influence improved blacks' relative position through increased public employment, fiscal redistribution, as well as through implementation and enforcement of group-favoring labor market policies, such as affirmative action and anti-discrimination laws.

Katherine Casey, Stanford University and NBER; and Abou Bakarr Kamara and Niccoló Meriggi, International Growth Centre

An Experiment in Candidate Selection (NBER Working Paper 26160)

Are ordinary citizens or political party leaders better positioned to select candidates? While the direct vote primary system in the United States lets citizens choose, it is exceptional, as the vast majority of democracies rely instead on party officials to appoint or nominate candidates. Theoretically, the consequences of these distinct design choices on the selectivity of the overall electoral system are unclear: while party leaders may be better informed about candidate qualifications, they may value traits--like party loyalty or willingness to pay for the nomination-- at odds with identifying the best performer. To make progress on this question, Casey, Kamara, and Meriggi partnered with both major political parties in Sierra Leone to experimentally vary how much say voters, as opposed to party officials, have in selecting Parliamentary candidates. They find evidence that more democratic selection procedures increase the likelihood that parties select the candidate most preferred by voters, favor candidates with stronger records of local public goods provision, and alter the allocation of payments from potential candidates to parties.

Camilo García-Jimeno, Emory University and NBER, and Alberto Ciancio, Population Studies Center

The Political Economy of Immigration Enforcement: Conflict and Cooperation under Federalism (NBER Working Paper 25766)

García-Jimeno and Ciancio study how the shared responsibilities over immigration enforcement by local and federal levels in the U.S. shape immigration enforcement outcomes, using detailed data on the Secure Communities program (2008-2014). Tracking the movement of arrested unlawfully present immigrants along the several steps of the immigration enforcement pipeline, and exploiting a large shift in federal enforcement priorities in mid 2011, the researchers disentangle the three key components of the variation in deportation rates: federal enforcement efforts, local enforcement efforts, and the composition of the pool of arrestees. This decomposition allows them to recover the local (county) level response to changes in federal enforcement intensity. Among urban counties, 80 percent, mostly Democratic but with small shares of Hispanics, exhibit strategic substitutabilities. The inverse relationship between federal and local efforts allowed most counties to reduce opposition to the policy, and was accompanied by an increased alignment of local and federal preferences. The federal level was very effective in directing its enforcement efforts towards counties where it expected local collaboration, but conflict was mostly driven by a change in the types of unlawfully present immigrants it prioritized for removal.

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