The Leader as Catalyst: On Leadership and the Mechanics of Institutional Change

Individual leaders have been central to the transformation of organizations, political institutions and many instances of social and economic reform. In this paper we take a first step towards analyzing the role of leadership to ask: when and how does a leader engineer change? We show that while underlying structural conditions and institutions are important, there is an independent first-order role for individual agency in bringing about change and thus transforming the institutions. We emphasize the key nature of the symbiotic relationship between followers decisions' to willingly entrust their faith in the leader and the leader's initiative at leading them. This two-way interaction can endogenously give rise to threshold effects; slight differences in the leader's ability or the underlying structural conditions can dramatically improve the prospects for successful change. Given the centrality of this leader-follower relationship, we further explore conditions under which an individual may deliberately prefer to follow an ambitious leader with divergent interests rather than a benevolent one with congruent preferences. Thus by virtue of having followers, both `good' and `bad' leaders may be effective at bringing about change.Leadership, Followers, Change

Expectations and the Central Banker: Making Decisions the Market Expects to See? [revised]

Reflecting on his experience as a central banker, Alan Blinder (1998) observed that “while I never saw a single case of a central banker succumbing to the temptation that so worried Kydland and Prescott, I often witnessed central bankers sorely tempted to deliver the policy that the markets expected or demanded.” In this paper we develop a framework that examines conditions under which a central banker is tempted to “follow the markets.” In doing so, we explore the implications of increased market ‘consensus’ on the practice of monetary policy and show that ineciency in policymaking is most likely precisely when there is a very high consensus that economic fundamentals are weak or strong. In addition, our results also shed light on (i) why interest rates may not be high enough even when the central bank’s information suggests a rise in asset prices may be due to ‘bubble’ shock; (ii) why a central banker may be reluctant to adopt a loose monetary policy even when investors seem to be very pessimistic about the path of future output; and (iii) why, contrary to conventional models, we sometimes observe an upward revision of private sector’s forecasts of inflation when the central bank tightens its monetary policy. The results have implications for transparency of monetary policy.

In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance

We consider a model of policy choice in which appropriate policies depend on a country's own circumstances, but the presence of a successful leader generates an informational externality and results in too little 'policy experimentation.' Corrupt governments are reined in while honest governments are disciplined inefficiently. Our model yields distinct predictions about the patterns of policy imitation, corruption, and economic performance as a function of a country''s location vis-……-vis successful leaders. In particular, it predicts a U-shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics: close neighbors should do very well, distant countries moderately well on average with considerable variance, and intermediate countries worst of all. An empirical test with the experience of post-socialist countries provides supportive results.

Public Opinion and the Dynamics of Reform

Why do economic reforms that are proceeding successfully often run aground? A number of observers have expressed surprise that public opinion regarding the continuation of a reform process often runs directly counter to the performance of the reform itself. This is especially surprising if one thinks of voters as forward-looking. If anything, a reform that is proceeding successfully might be expected to see burgeoning political support, as voters learn something about the underlying reform, or about the incumbent government's ability to implement it smoothly. In this paper we show that there might arise circumstances where the initial success of reform might result in it running into a political impasse. We suggest that the key might lie in the effect that the reform process has on the balance of political power. In particular, if initially successful reforms change the balance of political power in such a way as to make future redistribution less likely, then public opinion may turn against reform. Thus, in some sense, an initially successful reform may well end up sowing the seeds of its own destruction.political economy, economic reform, public opinion, redistribution, compensation

The Leader as Catalyst – on Leadership and the Mechanics of Institutional Change

Individual leaders have been central to the transformation of political institutions, organizations and many instances of social and economic reform. Why are some leaders able to take advantage of opportunities to successfully catalyze large-scale change while others fail? In this paper we argue that the key to understanding a leader’s effectiveness lies in dissecting the symbiotic nature of the leader-follower relationship. While the expected dynamism of a leader attracts followers, at the same time, followers empower the leader and contribute to his dynamism. This two-way leader-follower interaction can endogenously give rise to threshold effects: ‘small’ differences in leader ability can have a large impact on the degree of effective leadership and dramatically alter the prospects for change. The framework also naturally allows us to explore when individuals may deliberately prefer to follow an ambitious leader with very different preferences rather than a leader with more congruent preferences. Moreover, by empowering the self-interested ambitious leader, such followership may make him a more effective agent of (both good and bad) change.

Institution building and political accountability

The paper examines the role of policy intervention in engendering institutional change. We show that first order changes in the political structure (e.g. introduction of democracy) may be undermined by local political interests and result in persistence in institutions and the (poor) quality of governance. The paper identifies two effects of development policy as a tool for institutional change. One, by increasing political accountability, it may encourage nascent democratic governments to invest in good institutions – the incentive effect. However, we show that it also increases the incentive of the rentier elite to tighten their grip on political institutions – the political control effect. Which of these dominate determine the overall impact on institutional quality. Under some conditions, by getting the elite to align their economic interests with that of the majority, development policy can lead to democratic consolidation and economic improvement. However if elite entrenchment is pervasive, then comprehensive change may require more coercive means

Persistence of political partisanship : evidence from 9/11

This paper empirically examines whether the act of deciding to support a political party can impact partisan leanings years later. We use the discontinuity in the probability of being registered to vote around the 18th birthday to look at the impact of registration after the 9/11/01 attacks on party of registration. We first show that 9/11 increased Republican registration by approximately 2%. Surprisingly, these di¤erences in registration patterns fully persist over the two year period from 2006 to 2008, even for a group of registrants who moved and changed their registration address. We find full persistence for those registered in zip codes within two miles of a four year university, suggesting that persistence is unlikely to be explained by lack of easy access to or inability to process information. Instead, we suggest an interpretation of our findings based upon either cognitive or social biases

Policy Gambles

This paper develops a theory of policy making, that examines the incentives for experimentation with new policies and the scrappage of adopted policies. We demonstrate that a government which cares about its reputation out of electoral concerns, takes socially ine?cient policy gambles that may result in two kinds of ine?ciencies ? Þrst, a government may ine?ciently experiment by undertaking a new policy initiative that it (and the voter) knows is unlikely to succeed, and second, the government may prefer to not learn from experience and instead persist with an adopted policy despite publicly observable evidence of its failure. Furthermore, these ine?ciencies are systematically related to the electoral cycle. Early on in its term a government is likely to enact policies that are either too conservative or too radical, while later on in its term the government is likely to show ine?cient policy persistence.Learning, Policy Persistence, Policy Experimentation, Leadership, Reputation

Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform

This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform's initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity to make compensatory transfers to those adversely affected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it.Economic reform, State capacity, Politics, Redistribution, Compensation, Ethnic Conflict