Minority Representation and Policy Choices: The Significance of Legislator Identity.

Disadvantaged groups tend also to constitute population minorities. One consequence of this is that the policies implemented by electorally accountable governments often fail to reflect minority interests. A policy solution is to enhance the political power of minority groups as a vehicle for promoting their policy interests. This paper analyzes the success of an electoral law, which does so by reserving seats for minority groups in legislatures, in promoting minority interests. The paper develops a theoretical model of the political process to analyze the policy impact of such a law. The key theoretical assumption, that candidates cannot commit to policies, implies that identity is relevant to policy choices. The analysis identifies economic reasons why this may lead parties to never field minority candidates. In such cases the model predicts that an electoral law of political reservation will influence policies. The paper takes advantage of the existence of such a law in India to test this prediction empirically. The principal finding is that minority representation has increased transfers to minorities. This suggests that political representation is central to the design of strategies that aim at promoting minority interests. More generally, the results indicate that legislator identity influences policies, and provide some support for the contention that politicians cannot fully commit to policies.Political economy, minorities, electoral law, India, panel data.

Institutions and Development:A View from Below

In this paper we argue the case for greater exploitation of synergies between research on specific institutions based on micro-data and the big questions posed by the institutions and growth literature. To date, the macroeconomic literature on institutions and growth has largely relied on cross-country regression evidence. This has provided compelling evidence for a causal link between a cluster of ‘good’ institutions and more rapid long run growth. However, an inability to disentangle the effects of specific institutional channels on growth or to understand the impact of institutional change on growth will limit further progress using a cross-country empirical strategy. We suggest two research programs based on micro-data that have significant potential. The first uses policy-induced variation in specific institutions within countries to understand how these institutions influence economic activity. The second exploits the fact that the incentives provided by a given institutional context often vary with individuals’ economic and political status. This can help us better understand how institutional change arises in response to changing economic and demographic pressures.Institutions, Growth, Cross-Country Regressions

Dams

The construction of large dams is one of the most costly and controversial forms of public infrastructure investment in developing countries, but little is known about their impact. This paper studies the productivity and distributional effects of large dams in India. To account for endogenous placement of dams we use GIS data and the fact that river gradient affects a district's suitability for dams to provide instrumental variable estimates of their impact. We find that, in a district where a dam is built, agricultural production does not increase but poverty does. In contrast, districts located downstream from the dam benefit from increased irrigation and see agricultural production increase and poverty fall. Overall, our estimates suggest that large dam construction in India is a marginally cost-effective investment with significant distributional implications, and has, in aggregate, increased poverty.

Coordinating Development: Can Income-based Incentive Schemes Eliminate Pareto Inferior Equilibria?

Individuals’ inability to coordinate investment may significantly constrain economic development. In this paper we study a simple investment game characterized by multiple equilibria and ask whether an income-based incentive scheme can uniquely implement the high investment outcome. A general property of this game is the presence of a crossover investment point at which an individual’s incomes from investment and non-investment are equal. We show that arbitrarily small errors in the government’s knowledge of this crossover point can prevent unique implementation of the high investment outcome. We conclude that informational requirements are likely to severely limit a government’s ability to use income-based incentive schemes as a coordination device.Coordination, Public Policy, Income Taxation, Implementation

Read My Lips: The Political Economy of Information Transmission

The paper studies credible information transmission by governments. A group of heterogenous individuals have to make private investment and labour supply decisions while relying on the government for information about investment returns. The government consists of an elected citizen who chooses a redistributive strategy in addition to providing information. We give conditions under which the outcome leads to over- or under-investment in high-return activities and the outcome is Pareto efficient.Political economy, cheap talk, redistribution, development

Dams

The construction of large dams is one of the most costly and controversial forms of public infrastructure investment in developing countries, but little is known about their impact. This paper studies the productivity and distributional effects of large dams in India. To account for endogenous placement of dams we use GIS data and the fact that river gradient affects a district's suitability for dams to provide instrumental variable estimates of their impact. We find that, in a district where a dam is built, agricultural production does not increase but poverty does. In contrast, districts located downstream from the dam benefit from increased irrigation and see agricultural production increase and poverty fall. Overall, our estimates suggest that large dam construction in India is a marginally cost-effective investment with significant distributional implications, and has, in aggregate, increased poverty.Dams, Development Planning, Program Evaluation, India

Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse is true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.Finance and development, rural banking, bank licensing, credit constraints, structural change, diversification, redistribution, povery, growth.

Can mandated political representation increase policy influence for disadvantaged minorities? Theory and evidence from India

A basic premise of representative democracy is that every person subject to policy should have a voice in its making. However, policies enacted by electorally accountable governments often fail to reflect the interests of disadvantaged minorities. This paper uses political reservation in India to examine the role of mandated political representation in providing such groups policy influence. The Indian constitution mandates political reservation for disadvantaged castes and tribes in state elections - only members of these groups can stand for election in reserved jurisdictions. I find that political reservation in Indian states has increased targeted transfers to groups which benefit from the mandate. This finding underlines the importance of political representation in providing disadvantaged minorities' political voice. It also suggests that complete policy commitment may be absent in democracies, as is found in this case