Why explicit performance bonds are absent from employment contracts

Contains bibliographical references (p. 19-20)

Regulations, institutions, and economic performance : the political economy of the Philippines'telecommunications sector

The author addresses the puzzle of sluggish investment in the Philippines'dominant telecommunications firm, PLDT. This case allows a study of the underlying causes of success or failure in a privately owned infrastructure sector in a developing country. Since its inception, PLDT has been privately owned and has had direct access to international capital markets. But its services have been deficient, in quality and quantity, since the early 1960s. Using a transaction costs approach, the author hypothesizes that contracting problems between various economic players are important determinants of observed outcomes. Poor services are attributed to factors that impede implementation of performance - improving implicit or explicit contracts, including regulatory rules and regulations. After reviewing PLDT's responses to events in the last six decades, the author demonstrates that the problem can be traced to lack of commitment to regulatory policies beyond the term of each administration - because a relatively weak legislature and judiciary are dominated by the executive branch. This system of governance is linked to the nature of Philippine society: a small elite engaged in competitive politics among themselves tries to bar the rest of the population from active participation, without actually denying their citizenship. The president of the coutry has great leeway in setting and implementing regulations, so the elite group associated with the president can unilaterally modify telecommunications policy in a way that serves its interests. Those in control of PLDT find investing in the company's highly capital-intensive facilities risky if they are not connected to the president's circle. As a result, the government has an incentive to redistribute quasi-rents through regulatory mechanisms. This imposes a strong"political business cycle"on PLDT's growth pattern: investment rises only in the early years of"friendly"administrations and remains low at all other times. The author establishes this relationship by empirical analysis. Despite the failure of cyclical investment, no attempt has been made to reform the regulatory system because most solutions require an institutional commitment to a set of rules and procedures that are either infeasible or contrary to the interests of the elite. Certain reforms are becoming increasingly feasible, however, as a new middle class develops and elite alliances shift.National Governance,Economic Theory&Research,Environmental Economics&Policies,ICT Policy and Strategies,Public Sector Economics&Finance

Is the World Flat? Differential Regulation of Domestic and Foreign-Owned Firms

This paper examines the determinants of differential employment restrictions applied to foreign vs. domestic firms. We develop a model of employment regulation and test its implications using data from the World Bank's World Business Environment Survey, conducted in 1999/2000. We find that while democratic accountability, corruption, and British legal origin reduce the extent of government intervention in firms' employment decision, they give greater advantage to domestic relative to foreign investors. Rule of law, on the other hand, has a more even effect. Better investment opportunities in the country enhance the government's bargaining power vis-à-vis investors and increase employment intervention, especially in foreign firms engaged in less tradable sectors. We also identify a host of other factors that influence employment restrictions, though none of them entail a differential impact on foreign investors. We find that after controlling for other factors, foreign investors in Latin America face a greater regulatory disadvantage vis-à-vis locals compared to other regions of the world, though this is partly counterbalanced by other effects captured in the model.Employment Regulation, Foreign Direct Investment, Political Economy.

Estimating Trade Policy Models: An Empirical Study of Protection Policy in Turkey

This paper has two aims. A specific goal is to examine the determinants of protection policy in Turkey. A second, broader goal is to test the recent insights of the political economy models of trade policy and assess their contribution to the empirical investigation of associations between protection rate and industry characteristics. The paper develops a stylized model that captures the key common results of the new political economy models of trade policy, which show that import penetration and price elasticity of import demand act as weights in the relationship between an industry's protection rate and its political characteristics. We find that adhering to the specific functional form that the theory generates substantially improves the explanatory power of industry characteristics in our econometric work on Turkish data. The results show that protection rate is higher for industries with smaller, less capital-intensive firms and low wage workers. Interestingly, these effects vanish when such firms are publicly owned. These outcomes suggest that the risk-mitigating role of trade barriers is an important factor driving government policy in Turkey. The finding implies that continued move toward openness to international trade require progress in fiscal systems or domestic and international institutions that can deal with the economic insecurities generated by globalization.

Oil Exports and the Iranian Economy

This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran’s financial markets

Oil Exports and the Iranian Economy

This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran's financial markets.growth models, long run relations, Iranian economy, oil price, foreign output shocks, error correcting relations

Oil Exports and the Iranian Economy

This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran’s financial markets.growth models, long run relations, Iranian economy, oil price and foreign output shocks, and error correcting relations