Collective action, political parties and pro-development public policy

Broad consensus exists that the ability of political actors to make credible commitments is key to development. An important and little-explored determinant of the credibility of political commitments is the existence of organizations that facilitate citizen collective action to sanction political actors who renege. This paper focuses on one essential organization, the political party. Three measures of political parties are used to assess cross-country differences in the degree to which politicians facilitate the ability of citizens to act in their collective interest. Each of these measures is associated with superior development outcomes, above and beyond the effects of competitive elections. These results have implications for understanding the extraordinary economic success of some East Asian countries and notable lags among others: East Asian non-democracies exhibit more institutionalized ruling parties than other non-democracies, while East Asian democracies exhibit equally or less institutionalized parties. The evidence suggests that greater research and policy emphasis be placed on the organizational characteristics of countries that allow citizens to hold leaders accountable.Parliamentary Government,Political Systems and Analysis,Politics and Government,Corporate Law,E-Government

Politics and the Determinants of Banking Crises: the Effects of Political Checks and Balances

A large body of research has provided significant insights into the financial and macroeconomic causes of banking crises. Many of these causes - ranging from lapses in financial regulation to determined efforts to maintain a fixed exchange rate - have in common their origins as policy decisions of political actors. Numerous non-technical criteria, ranging from the identity and interests of political constituencies to political and electoral institutions, condition the incentives of political decision makers to make or correct policy "mistakes". This paper explores the role of one significant political institution, the presence or absence of political checks and balances. Checks and balances influence the independence of regulators, the value and cost of special interest payoffs to policy makers, and individual political incentives to avoid collective policy failures. The evidence suggests that the financial and economic causes of crisis, consistent with these arguments, differ significantly in countries that exhibit few or many political checks and balances.

Elections, special interests, and the fiscal costs of financial crisis

The author proposes a new approach to explain why the costs of crisis are greater in some countries than in others. He begins with the premise that many crises result from the willingness of politicians to cater to special interests, at the expense of broad social interests. A parsimonious model predicts that the less costly it is for average citizens to expel politicians, the more veto players there are; the less important are exogenous shocks, and the more difficult it is for politicians and special interests to forge credible agreements, the lower the costs of crisis are. Though these predictions differ from those in the literature, empirical evidence presented shows that they explain the fiscal costs of financial crisis, even after controlling for the financial sector policies believed to contribute most to the efficient prevention, and resolution of financial crisis.Banks&Banking Reform,Payment Systems&Infrastructure,Decentralization,Economic Theory&Research,National Governance,National Governance,Economic Theory&Research,Banks&Banking Reform,Financial Crisis Management&Restructuring,Financial Intermediation

Insurgency and credible commitment in autocracies and democracies

This paper suggests a new factor that makes civil war more likely: the inability of political actors to make credible promises to broad segments of society. Lacking this ability, both elected and unelected governments pursue public policies that leave citizens less well-off and more prone to revolt. At the same time, these actors have a reduced ability to build an anti-insurgency capacity in the first place, since they are less able to prevent anti-insurgents from themselves mounting coups. But while reducing the risk of conflict overall, increasing credibility can, over some range, worsen the effects of natural resources and ethnic fragmentation on civil war. Empirical tests using various measures of political credibility support these conclusions.Population Policies,Parliamentary Government,Economic Theory&Research,Social Conflict and Violence,Politics and Government

Social capital, social norms and the New Institutional Economics

Douglass North (1990) describes institutions as the rules of the game that set limits on human behavior, now a universally-accepted definition. North and others especially underline the crucial role of informal social norms. They predict that, like all rules of the game, social norms should affect the economic prosperity enjoyed by individuals and countries – that they should have a crucial impact, for example, on economic and political development. In fact, substantial evidence demonstrates that social norms prescribing cooperative or trustworthy behavior have a significant impact on whether societies can overcome obstacles to contracting and collective action that would otherwise hinder their development. Much of this evidence comes from outside the new institutional economics, emerging instead from scholarly research in the field of “social capital.” A review of this evidence, and its implications for our understanding of the role of social norms and institutions, is therefore the focus of this chapter.social capital, norms, institutions, institutional economics

When does delegation improve credibility? Central Bank independence and the separation of powers

Delegation and policy rules are frequently suggested strategies for governments to establish credible commitments. Existing literature on rules and delegation in macroeconomic policy has generally avoided the question of why governments that delegate or establish rules do not subsequently reverse this decision. Either the decision is assumed to be irreversible, or reversal is assumed to be “politically costly” without further explanation. We develop several hypotheses which suggest that the difficulty in reversing a decision to delegate (or to establish a rule) depends on the structure of a country’s political institutions. Credible commitment through delegation can only be obtained in countries where political institutions provide for checks and balances on executive authority. Checks and balances ensure that the decision to override a legally independent central bank is not the prerogative of a single actor (or veto player). In countries with these characteristics, the extent of credibility gains will be greatest when political instability is moderate and when polarization is high. We find support for these hypotheses in tests using cross-country data - from both developed and developing countries - on central bank independence and political institutions.

Do informed citizens receive more...or pay more ? the impact of radio on the government distribution of public health benefits

The government provision of free or subsidized bed nets to combat malaria in Benin allows the identification of new channels through which mass media affect public policy outcomes. Prior research has concluded that governments provide greater private benefits to better-informed individuals. This paper shows, for the first time, that governments can also respond by exploiting informed individuals'greater willingness to pay for these benefits. Using a"natural experiment"in radio markets in northern Benin, the paper finds that media access increases the likelihood that households pay for the bed nets they receive from government, rather than getting them for free. Households more exposed to radio programming on the benefits of bed nets and the hazards of malaria place a higher value on bed nets. Local government officials exercise significant discretion over bed net pricing and respond to higher demand by selling bed nets that they could have distributed for free. Mass media appears to change the private behavior of citizens -- in this case, to invest more of their own resources on a public health good (bed nets) -- but not their ability to extract greater benefits from government.Health Monitoring&Evaluation,Population Policies,Knowledge Economy,Education For All,Malaria

Democracy, credibility and clientelism

The authors demonstrate that sharply different policy choices across democracies can be explained as a consequence of differences in the ability of political competitors to make credible pre-electoral commitments to voters. Politicians can overcome their credibility deficit in two ways. First, they can build reputations. This requires that they fulfill preconditions that in practice are costly: informing voters of their promises; tracking those promises; ensuring that voters turn out on election day. Alternatively, they can rely on intermediaries -- patrons - who are already able to make credible commitments to their clients. Endogenizing credibility in this way, the authors find that targeted transfers and corruption are higher and public good provision lower than in democracies in which political competitors can make credible pre-electoral promises. The authors also argue that in the absence of political credibility, political reliance on patrons enhances welfare in the short-run, in contrast to the traditional view that clientelism in politics is a source of significant policy distortion. However, in the long run reliance on patrons may undermine the emergence of credible political parties. The model helps to explain several puzzles. For example, public investment and corruption are higher in young democracies than old; and democratizing reforms succeeded remarkably in Victorian England, in contrast to the more difficult experiences of many democratizing countries, such as the Dominican Republic.Environmental Economics&Policies,Decentralization,Election Systems,Economic Theory&Research,Labor Policies,Economic Theory&Research,Environmental Economics&Policies,National Governance,Parliamentary Government,Politics and Government

Mass media and public services : the effects of radio access on public education in Benin

Does radio access improve public service provision? And if so, does it do so by increasing government accountability to citizens, or by persuading households to take advantage of publicly-provided services? Prior research has argued that citizens with greater access to mass media receive greater benefits from targeted government welfare programs, but has not addressed these questions for public services such as in education and health. Using unique data from Benin, this paper finds that literacy rates among school children are higher in villages exposed to signals from a larger number of community radio stations. The effect is identified based on a"natural experiment"in the northern communes of Benin where within-commune variation in village access to radio stations is exogenous to observed and unobserved village characteristics. In contrast to prior research, the authors find that this media effect does not operate through government accountability: government inputs into village schools and household knowledge of government education policies are no different in villages with greater access to community radio. Instead, households with greater access are more likely to make financial investments in the education of their children.Education For All,Population Policies,Social Accountability,E-Business,Disability

Checks and balances, private information, and the credibility of monetary commitments

The authors develop and test several new hypotheses about the anti-inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies. Theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power (checks and balances), the number of veto players will have no effect on the credibility of exchange rate pegs. Conversely, the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation. Exchange rate pegs, however, mitigate these problems. The authors present extensive evidence from cross-country tests using newly developed data thatprovide strong support for their propositions.Economic Stabilization,Economic Theory&Research,Macroeconomic Management,Environmental Economics&Policies,Financial Intermediation