State of the State
Erika Martin & Patricia Keenan
Publius, Winter 2011, Pages 101-125
Abstract:
While substantial research examines the dynamics prompting policy adoption, few studies have assessed whether enacted policies are modified to meet distributional equity concerns. Past research suggests that important forces limit such adaptation, termed here "policy inertia." We examine whether block grant allocations to states from the Ryan White HIV/AIDS Program have evolved in response to major technological and political changes. We assess the impact of initial allocations on later funding patterns, compared to five counterfactual distributional equity standards. Initial allocations strongly predict future allocations; in comparison, the standards are weak predictors, suggesting the importance of policy inertia. Our methodology of employing multiple measures of equity as a counterfactual to policy inertia can be used to evaluate the adaptability of federalist programs in other domains.
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Redistribution in a model of voting and campaign contributions
Filipe Campante
Journal of Public Economics, forthcoming
Abstract:
I propose a framework in which individual political participation can take two distinct forms, voting and contributing resources to campaigns, in a context in which the negligible impact of any individual's actions on aggregate outcomes is fully recognized by all agents. I then use the framework to reassess the relationship between inequality and redistribution. The model shows that, even though each contribution has a negligible impact, the interaction between contributions and voting leads to an endogenous wealth bias in the political process, as the advantage of wealthier individuals in providing contributions encourages parties to move their platforms closer to those individuals' preferred positions. This mechanism can in turn explain why the standard median-voter-based prediction, that more inequality produces more redistribution, has received little empirical support: Higher inequality endogenously shifts the political system further in favor of the rich. In equilibrium, there is a non-monotonic relationship in which redistribution is initially increasing but eventually decreasing in inequality. I present some empirical evidence supporting the framework, using data on campaign contributions from US presidential elections. In particular, inequality increases contributions to Republicans, but not to Democrats, as predicted by the model.
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Political Investing: The Common Stock Investments of Members of Congress 2004-2008
Andrew Eggers & Jens Hainmueller
MIT Working Paper, October 2010
Abstract:
We examine common stock investments made by members of Congress between 2004 and 2008. We find that that the Congressional stock portfolio in this period underperforms market indices by 2-3% per year, suggesting that members of Congress are not the savvy insiders depicted in previous research but instead are quite ordinary in their mediocrity. Members of Congress are remarkable as investors, however, in two main respects: a) they invest disproportionately in companies to which they are politically connected, and b) their investments in companies headquartered in their own districts outperform the market by over 4% per year. Our findings suggest that informational advantages enjoyed by members of Congress as investors arise primarily from their relationships with local companies, and that widespread concerns about corrupt and self-serving investing behavior in Congress have been misplaced.
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Simon Fan, Chen Lin & Daniel Treisman
NBER Working Paper, November 2010
Abstract:
Corrupt officials can use their positions to enrich themselves in two ways. They can steal from the state budget-embezzling or misspending funds - or they can demand extra payments from citizens in return for services - bribery. In many circumstances, embezzlement is less distortionary than bribery. We analyze the tradeoff for governments in deciding how strictly to monitor and punish these two kinds of bureaucratic misbehavior. When bribery is more costly to economic development, governments may tolerate some embezzlement in order to reduce the extent of bribery - even though embezzlement is generally easier to detect. Embezzlement serves as a parallel to the "efficiency wage." This logic appears to hold in China, where misappropriation of public funds by officials appears to be ubiquitous.
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Regulatory Policy and the Reverse Cellophane Fallacy
Debra Aron & David Burnstein
Journal of Competition Law & Economics, December 2010, Pages 973-994
Abstract:
A proper economic analysis of whether a regulated firm has - or, more accurately, would, in the absence of regulation, have - market power is a significantly different exercise from a typical market power analysis of an unregulated firm. We show that applying the usual tools of market power analysis to firms in regulated industries can lead to predictably erroneous outcomes. Prices set by regulatory fiat at below-cost levels would cause what we term the "reverse cellophane fallacy." The uneconomically low prices cause other services to appear to be weaker substitutes than they would be at compensatory prices and therefore lead to improperly narrow market definitions and erroneous inferences of market power. This in turn leads to the self-perpetuation of regulation, in which regulators insist on finding that the incumbent lacks market power before deregulating prices, whereas the artificially restricted prices lead to an erroneous inference of market power. We test this hypothesis empirically by examining a sample of geographic "markets" (incumbent exchange service areas) in a single U.S. state in 2004. Our findings indicate that the relative absence of competition in rural areas should not be interpreted as evidence that the incumbent would be able to exercise market power absent price regulation.
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Can neoclassical economics handle complexity? The fallacy of the oil spot dynamic
Magda Fontana
Journal of Economic Behavior & Organization, December 2010, Pages 584-596
Abstract:
This paper is essentially a rebuttal of the view that neoclassical economics can handle complexity. I have coined the locution 'oil spot dynamic' to denote the neoclassical ability to subsume each and every new perspective. The main part of the paper is devoted to showing why the oil spot dynamic cannot work with the complexity approach, which is seen as a coherent stand-alone research program that stems from the SFI Economics Program and manifests itself with different nuances. The fallacy of the oil spot dynamic is relevant in this period, in which economists are beginning to realize that the Neoclassical Samuelsonian Paradigm no longer represents the common language of their profession. The spread of the complexity approach and the dissolving notion of 'mainstream' are here interpreted as indicative of a changing economics. A short foray into the features of the process of change completes my arguments by showing that the shift from one paradigm to another has many interrelated dimensions, and that there may be rigidities internalizing changes.
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How small system dynamics models can help the public policy process
Navid Ghaffarzadegan, John Lyneis & George Richardson
System Dynamics Review, forthcoming
Abstract:
Public policies often fail to achieve their intended result because of the complexity of both the environment and the policy-making process. In this article, we review the benefits of using small system dynamics models to address public policy questions. First we discuss the main difficulties inherent in the public policy-making process. Then, we discuss how small system dynamics models can address policy-making difficulties by examining two promising examples: the first in the domain of urban planning and the second in the domain of social welfare. These examples show how small models can yield accessible, insightful lessons for policy making stemming from the endogenous and aggregate perspective of system dynamics modeling and simulation.
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Wesley Leckrone & Justin Gollob
State and Local Government Review, December 2010, Pages 235-245
Abstract:
This article argues that state legislative memorials to Congress are an underutilized tool in the study of federalism. A data set composed of the 4,119 memorials submitted to Congress from 1987 to 2006 was constructed to study the evolution of state priorities in intergovernmental policy and to examine attitudes toward state-federal relations. Analysis shows that memorials have been used by every state legislature to send substantive policy signals to Washington across a wide range of issues. The article concludes that the inclusion of memorials into the study of intergovernmental relations provides researchers rich insight into unexplored issues critical to our understanding of federalism.
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Service Delivery and Corruption in Public Services: How Does History Matter?
Priyanka Pandey
American Economic Journal: Applied Economics, July 2010, Pages 190-204
Abstract:
This paper provides microlevel evidence of how past institutions impact present economic outcomes. It looks at the impact of colonial land tenure institutions on local governance and education outcomes in northern India. Outcomes are worse in villages that belong to areas with a history of concentration of power with the elites. Such areas continue to retain a greater political presence of socially and economically dominant classes. Future research should examine the success of policies that attempt to break such persistence through empowerment of nonelite groups.
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Can We Design an Optimal Constitution? Of Structural Ambiguity and Rights Clarity
Richard Epstein
Social Philosophy and Policy, January 2011, Pages 290-324
Abstract:
The design of new constitutions is fraught with challenges on both issues of structural design and individual rights. As both a descriptive and normative matter it is exceedingly difficult to believe that one structural solution will fit all cases. The high variation in nation size, economic development, and ethnic division can easily tilt the balance for or against a Presidential or Parliamentary system, and even within these two broad classes the differences in constitutional structure are both large and hard to measure. The only confident claim is that some system of separation of powers coupled with checks and balances is needed. Deciding which system, however, is far harder. In contrast, that same level of doubt does not arise in connection with the correct specification of individual right. Strong systems of negative rights on matters of liberty, property, religion, and speech are preferable across a wide range of social organizations. On the other hand, any effort to create systems of positive entitlements will fail because of the negative effects that they have on wealth creation and the inability to define or limit the scope of the relevant entitlements.
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The Brewer, the Baker, and the Monopoly Maker
Diana Weinert Thomas & Peter Leeson
George Mason University Working Paper, November 2010
Abstract:
This paper examines how productive entrepreneurial activities, such as innovation, influence unproductive entrepreneurial activities, such as regulatory rent seeking. We argue that the former may increase the latter. Confronted with a situation in which innovation erodes their monopoly returns, legally protected producers and policymakers reregulate industry to recapture lost rents. Regulation policy under such reregulation tends to be more encompassing, and thus produces more unproductive entrepreneurial activity, than preinnovation regulation policy. This reflects the greater number or variety of producers that new regulation policy must encompass for reregulation to recreate rents. To investigate our argument we consider Bavaria's brewing industry in the 14th through 16th centuries.
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Morris Kleiner & Kyoung Won Park
NBER Working Paper, November 2010
Abstract:
Occupational licensing is among the fastest-growing labor market institutions in the U.S. economy. One of the key features of occupational licensing is that the law determines who gets to do the work. In those cases where universally licensed occupations are both complements to and substitutes for one another in providing a service, the government determines who can do the tasks that are required for the consumer. In this study, we examine dentists and dental hygienists, who are both universally licensed and provide complementary services to patients, but may also be substitutes as service providers. We focus on the labor market implications of governmental requirements on permissible tasks and the supervision of hygienists' activities by dentists. Since there are elements of monopsony in the market we examine, we use the model as a guide for our analysis. We find that states that allow hygienists to be self-employed have about 10 percent higher earnings, and that dentists in those states have lower earnings and slower employment growth. Several sensitivity and falsification tests using other regulated and partially regulated occupations show that our licensing measures are generally robust to alternative specifications. Our estimates are consistent with the view that winning the policy and legal battle in the legislature and courts on the independence of work rules matters in the labor market for these occupations.
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Does Court Speed Shape Economic Activity? Evidence from a Court Reform in India
Matthieu Chemin
Journal of Law, Economics, & Organization, forthcoming
Abstract:
This article investigates the impact of quick courts on firms' contracting behavior and economic performance. In 2002, the Code of Civil Procedure Amendment Act was enacted in India to facilitate speedy disposal of civil suits. Some State High Courts had already enacted some of the amendments contained in this reform a long time ago. This spatial variation in the reform's implementation is used to identify the effect of court speed on firms' behavior. Using data on small firms, I find that the reform led to fewer breaches of contract, encouraged investment, and facilitated access to finance.
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The Aging of the State Government Workforce: Trends and Implications
Gregory Lewis & Yoon Jik Cho
American Review of Public Administration, January 2011, Pages 48-60
Abstract:
The aging of the baby boom generation, combined with the success of the New Public Management in downsizing the federal government, has led to a rapidly aging federal service, a reduced flow of new blood, and a looming "tsunami" of retirements that are forcing the federal service to reconsider many of its human resource practices. Are state government workforces undergoing the same transformation? Using the 1980, 1990, and 2000 Census 5% Public Use Microdata Samples and the 2001-2007 American Community Surveys, the authors find that state governments have older workers than any other sector and that the mean age of their workforce has risen nearly as much as that of the federal civil service. Thus, the retirement tsunami may hit states harder than the federal government. The authors examine the effects of this coming tsunami on turnover, institutional memory, diversity, and educational qualifications.
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Telling Policy Stories: An Ethnographic Study of the Use of Evidence in Policy-making in the UK
Alex Stevens
Journal of Social Policy, forthcoming
Abstract:
Based on participant observation in a team of British policy-making civil servants carried out in 2009, this article examines the use that is made of evidence in making policy. It shows that these civil servants displayed a high level of commitment to the use of evidence. However, their use of evidence was hampered by the huge volume of various kinds of evidence and by the unsuitability of much academic research in answering policy questions. Faced with this deluge of inconclusive information, they used evidence to create persuasive policy stories. These stories were useful both in making acceptable policies and in advancing careers. They often involved the excision of methodological uncertainty and the use of 'killer charts' to boost the persuasiveness of the narrative. In telling these stories, social inequality was 'silently silenced' in favour of promoting policies which were 'totemically' tough. The article concludes that this selective, narrative use of evidence is ideological in that it supports systematically asymmetrical relations of power.
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Crowding Out Intrinsic Motivation in the Public Sector
Yannis Georgellis, Elisabetta Iossa & Vurain Tabvuma
Journal of Public Administration Research and Theory, forthcoming
Abstract:
Employing intrinsically motivated individuals has been proposed as a means of improving public sector performance. In this article, we investigate whether intrinsic motivation affects the sorting of employees between the private and the public sectors, paying particular attention to whether extrinsic rewards crowd out intrinsic motivation. Using British longitudinal data, we find that individuals are attracted to the public sector by the intrinsic rather than the extrinsic rewards that the sector offers. We also find evidence supporting the intrinsic motivation crowding out hypothesis, in that, higher extrinsic rewards reduce the propensity of intrinsically motivated individuals to accept public sector employment. This is, however, only true for two segments of the UK public sector: the higher education sector and the National Health Service. Although our findings inform the literature on public service motivation, they also pose the question whether lower extrinsic rewards could increase the average quality of job matches in the public sector, thus improving performance without the need for high-powered incentives.
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Hanan Haber
Law & Policy, January 2011, Pages 116-148
Abstract:
The regulatory state and the welfare state are two institutions that are central to the analysis of the characteristics of capitalist democracies. The regulatory state is seen as focused on market failures and trust-busting, while the welfare state is said to shield citizens from the negative redistributive effects and externalities of the market. This article explores the relations and boundaries between the welfare state and the regulatory state in the electricity sectors in the United Kingdom, Sweden, and Israel. It demonstrates the emergence of social policy within the context of liberalized, privatized, and (de)regulated electricity sectors. This article finds that the boundaries between the regulatory state and the welfare state are blurred in Israel and the United Kingdom but not in Sweden. These findings may imply a connection between the welfare state and the regulatory state, suggesting that a strong welfare state is needed in order to maintain regulation-for-competition.
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Red Tape and Democracy: How Rules Affect Citizenship Rights
Donald Moynihan & Pamela Herd
American Review of Public Administration, November 2010, Pages 654-670
Abstract:
Over the past 15 years, political science has paid increasing attention to the feedback effects of policy-the idea that the design of policies has profound effects on how citizens experience government and understand their role in the polity. One concept that is perfectly placed to explain how citizens experience administrative rules is red tape. But even as an impressive empirical scholarship on red tape has grown in recent years, it has focused almost exclusively on organizational actors rather than citizens. This article ties the red tape concept into a policy feedback framework. The authors argue that administrative rules frequently exert significant and unjustified compliance burden that restrict access to political and social rights. Furthermore, such burdens have equity implications, because they are often disproportionately experienced by disadvantaged groups. These propositions are illustrated using examples from welfare state and election policies in the United States.
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Allies and Adversaries: Appointees and Policymaking Under Separation of Powers
Patrick Warren
Journal of Law, Economics, & Organization, forthcoming
Abstract:
Public sector agencies are an important front in the day-to-day battle for political supremacy between the executive and the legislature. The executive's key agents in this conflict are his appointees, who frequently play one of two roles: Congressional allies, where they help Congress implement policy and Congressional adversaries, where they fight with Congress to shift policy strongly toward the executive. This article studies how these two roles arise and what implications they have for administrative policymaking. It highlights how intrinsically motivated bureaucrats combined with hierarchical control affect the ability of the political principals to control the execution of policy. I explore how this interaction shifts under alternative institutional forms, and how it leads appointees to "go native." The model makes several predictions concerning Congressional oversight of bureaucratic agencies. An empirical analysis of audit reports released by the Government Accountability Office finds patterns of oversight consistent with these predictions.
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Daylian Cain, George Loewenstein & Don Moore
Journal of Consumer Research, forthcoming
Abstract:
Disclosure is often proposed as a remedy for conflicts of interest, but it can backfire, hurting those whom it is intended to protect. Building on our prior research, we introduce a conceptual model of disclosure's effects on advisors and advice recipients that helps to explain when and why it backfires. Studies 1 and 2 examine psychological mechanisms (strategic exaggeration, moral licensing) by which disclosure can lead advisors to give more-biased advice. Study 3 shows that disclosure backfires when advice recipients who receive disclosure fail to sufficiently discount and thus fail to mitigate the adverse effects of disclosure on advisor bias. Study 4 identifies one remedy for inadequate discounting of biased advice: explicitly and simultaneously contrasting biased advice to unbiased advice.