Aspects of Bureaucratic Corruption

This review attempts to identify treatments of corruption that draw upon characteristics of underdevelopment either as causes or as consequences. It focuses on three aspects of corruption in developing economies: red tape, rent-seeking, and the abundance of intermediaries. Red tape is presented as arising from differences in ability-to-pay and willingness-to-pay, which is a consequence of incomplete or absent markets in LDCs. Rent-seeking is viewed as a reason for inefficient allocation of resources. We emphasise that there is very little analysis of intermediation, but analysis is necessary to understand the structure of corruption markets.Bureaucratic Corruption; Red Tape; Middlemen; Rent Seeking

Monitoring for worker quality

Much nonmanagerial work is routine, with all workers having similar output most of the time. However, failure to address occasional challenges can be very costly, and consequently easily detected, while challenges handled well pass unnoticed. We analyze job assignment and worker monitoring for such “guardian” jobs. If monitoring costs are positive but small, monitoring is nonmonotonic in the firm’s belief about the probability that a worker is good. The model explains several empirical regularities regarding nonmanagerial internal labor markets: low use of performance pay, seniority pay, rare demotions, wage ceilings within grade, and wage jumps at promotion.The research in this paper was supported in part by National Science Foundation grant SES-1260917. We are grateful to Costas Cavounidis, Bob Gibbons, Sambuddha Ghosh, Eddie Lazear, Bart Lipman, Andy Newman, Mike Waldman, and participants at seminars, workshops, and conferences at Boston University, Massachusetts Institute of Technology, the National Bureau of Economic Research, the Society of Labor Economics, Tel Aviv University, University of California, Santa Barbara, and the University of New South Wales for helpful comments and suggestions. The usual caveat applies. Contact the corresponding author, Kevin Lang, at [email protected]; and coauthor Gautam Bose at [email protected]. (SES-1260917 - National Science Foundation

A Theory of Monitoring and Internal Labor Markets

We analyze a firm's job-assignment and worker-monitoring decisions when workers face occasional crises. Firms prefer to assign good workers to a difficult task and to not employ bad workers. Firms observe failures but only observe successfully resolved crises if they monitor the worker. If monitoring costs are positive but sufficiently small, for a range of probabilities that the worker is good, the firm assigns the worker to a low task (less sensitive to crises) and monitors her. At probabilities below this range and not too much above it, she is assigned to the low task and not monitored. At high probabilities of being good, she is assigned to the difficult task. We analyze the implications for internal labor markets of the case where a worker has the same ex ante probability of being good at all firms and learning is about ability at this particular firm.

Contributing to Peace

Contest theory analyses an anarchic economy where agents use resources in acquisitive conflict and for consumption, and explores condition for peace or conflict to prevail in equilibrium. Peacekeepers in the shape of kings, dictators or states arise endogenously in such circumstances. I analyse a variation of the canonical Tullock contest in which each of the potential contestants first has the option of contributing some resources to a neutral peacekeeper, and then allocates her remaining resources between arms and consumption. In the subsequent subgame, if one of the contestants attacks the other, then the peacekeeper joins its resources with the agent that is attacked. I show that, for less unequal resource distributions, contribution to peacekeeping is positive and subsequently leads to peace. The deterrence equilibria are pareto-superior to the corresponding equilibria of the pure Tullock contest except in a narrow range. When the distribution is too unequal, no contributions are made and conflict occurs in equilibrium

Multinational enterprises, cross-border acquisitions, and government policy

This paper analyzes the optimality of policy specifications used to regulate the acquisition and operation of local firms by multinational enterprises (MNE). We emphasize the consequence of such regulation on the price of the domestic firm in the market for corporate control. We show that it is optimal to impose ceilings on foreign ownership of domestic firms when the government's objective is to maximize domestic shareholder profits. While the optimal ceiling is high enough for the MNE to gain control of the domestic firm, it nevertheless influences the price that the MNE must pay for the domestic firm's shares to the advantage of the domestic shareholders. Restrictions on transfer pricing are either irrelevant or strictly suboptimal. The consequences of alternative specifications of the government's objective function are also analyzed.Acquisition; Control; Multinational Enterprises; Transfer pricing

Micro-credit programs and land distribution: a note

&quot;Micro-credit&quot; has come to refer to a popular extension strategy---usually in the agricultural sector---whereby a government or NGO extends credit at favorable rates to poorer borrowers, with repayment being supported by some kind of mortgage on the borrower\u27s social capital. In the commonest case, eligibility is determined by the borrower\u27s wealth, as indexed by his/her landholding. This note shows that, with an imperfect land market, the response to such a program will be to fragment landholdings which are smaller than a certain threshold, while larger holdings remain unaffected. Thus the pattern of landholding will tend to become more polarized.<br /

Affirmative Action, Equal Opportunity, or just tax the rich? Development, efficiency, and the pursuit of equity

Tension between efficiency and equity is fundamental to every economy. Historical differences between groups translate into inequality in skills and hence earnings. Measures to correct inequalities affect incentives and misallocate talent, therefore compromising efficiency. This paper examines the efficiency properties of the three most common classes of equity policies: affirmative action, equal opportunity and tax-transfer. Our focus is to examine how the effectiveness of policies vary with the level of development and technology and the political maturity of the state. We argue that the optimal policy is likely to be different for different countries, and indeed for the same country at different stages of development. The intuition driving our approach is that the products produced in a less-developed economy are less complex and require lower embodied skills. Here, preferentially placing less prepared individuals in higher skill jobs does not compromise efficiency to too large an extent. In high-technology production processes, however, skills are more critical and productivities are interdependent, so it makes more economic sense to adequately train the inductees even at a relatively high cost. The most efficient outcomes are yielded by competitive markets accompanied by appropriate tax-transfer schemes. However, such schemes can effectively be used only by economies with the highest levels of socialisation and state capacity. We find that, in a low-complexity economy, reservation fares better than both training and tax transfer. As complexity of the production process increases training becomes more attractive and is in turn superseded by tax-transfers in the most complex and politically mature economies. These findings provide a step towards more informed and robust policy. We discuss several omissions and directions for further development

Conformity and adaptation in groups

Empirical and experimental evidence suggests that individual behavior in group interactions is affected by perceived norms of behavior within the group. We design an experiment to test this hypothesis. We find that (a) when agents interact within a group, the initial diverse behaviors converge to the group average and individuals cluster more tightly around this benchmark as they learn the average, (b) actions further from this benchmark in a self-serving direction are less acceptable by others, and (c) when an agent is moved to a group with a different benchmark, s/he conforms quickly to the new benchmark

Ideas for India

A non-technical discussion of the material in the paper by Bose, Jain and Walker (European Economic Review 2022). I4I is a periodical aimed at the broad academic community in the social sciences in India