Ronald Coase Institute

2014 Manila Workshop: Abstracts

DECEMBER 7-13, 2014


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Political Institutions, Resources, and War
Clemson University

How do political institutions shape the margins of conflict? I exploit variation in the ancient Roman political regime to explain why there are more battles in the republic than in the empire. I provide a model where the type of political regime affects the distribution of costs and benefits coming from military activity. A decisive member of the dominant coalition chooses between expending resources towards plunder, defence, or market consumption. Increasing the breadth of the coalition reduces the incentive for wars of private benefit but increases the incentive for wars of more public benefit. The empirical study starts with the beginning of the Republic (500BC), ends with the Byzantine schism (400AD), and covers a land space around the Mediterranean. During the imperial years: 1) the average battle was on less-rugged terrain, 2) battles were more dispersed over terrain 3) battles were less ``border-centric'', 4) rugged terrain is more of a battle deterrent, and 5) more populated areas are less contested. These findings are consistent with the theoretical predictions, namely that dictators have higher marginal returns to the private element of war but lower returns to the public element.

Persistent Effects of Pre-Inca Cultures in North-East Peru
Mariel BEDOYA and María Andrea Gastañaduí
Group for the Analysis of Development

The study utilizes regression discontinuity under a multidimensional approach to examine long-run impacts of the settlement of Pre-Inca Peruvian cultures in the northeast of Peru that developed between 1100 B.C and 1450 B.C., during the Second Regional Independence period (Periodo de Independencia Regional II). Using a map to geo-reference limits of cultures exogenously imposed by geographic reasons, results suggest that the presence of culture would reduce household consumption of households marginally within areas where these cultures settled in 10% and mother’s education in 0.4 years, approximately. Results would be related to the exogenous and oppressive imposition of institutionalism by colonizers. The map utilized was based upon reports of Spanish Officials during the viceroyalty of Peru and made by Federico Kauffman Doig – a distinguished historian specialized in Peruvian history - in cooperation with the Peruvian National Geographic Institute (IGN).

Is VAT a Very Alterable Tax in China?
Shawn Xiaoguang CHEN
London School of Economics and Political Science

How do political institutions affect the incentives for selective tax enforcement across industries? What role can politicians play in this regard over their tenure?

In this paper I study the VAT enforcement in China, which is subject to the influence of local politicians, particularly the prefectural secretary of the communist party. I find that, as the prefectural secretary stays longer in office, the de facto VAT rate falls for capital-intensive firms and rises for labour-intensive ones.

In a similar vein, I use a natural experiment that creates variation across counties in a “fiscal squeeze” which forces them to tighten up tax enforcement in order to bolster revenues, to show that the longer the current prefectural secretary has been in his/her role, the more the burden of VAT adjustment falls on labour-intensive firms rather than capital-intensive ones.
I generalize my findings by showing that two additional firm-level outcomes are sensitive to the local secretary’s tenure.

First, the profit gap – a proxy for misreporting of company profits and evading corporate tax – becomes more (less) severe for capital-intensive (labour-intensive) firms as the party secretary’s tenure increases. This suggests that monitoring becomes more lax for the capital-intensive firms, and also indicates that the tenure effect may extend to forms of tax evasion other than on VAT. 
Second, I find that over a secretary’s tenure capital- (labour-) intensive firms are able to accumulate more (less) debt. Since the allocation of credit in China is subject to considerable political influence, this suggests that increasing favouritism towards capital-intensive firms over the tenure of a secretary is not limited to less aggressive tax enforcement.

I conclude the paper with a discussion of possible explanations for the tenure effect. I argue that the most plausible explanation is corruption. In support of this explanation I present some circumstantial evidences that capital-intensive firms are more liable to mis-conduct for the favourable treatment. Alternative explanations, such as politician’s preference, industrial policies, political connection, and learning effects, are not entirely impossible but hard to reconcile with some evidences.

How Does the Pre-Auction Mechanism Lead to the Undersupply of Land?
From a Free-Riding Problem Perspective

William K. S. CHEUNG, S. K. Wong, and
L. H. Li
The University of Hong Kong

How does the pre-auction mechanism lead to the undersupply of land? In Hong Kong with the government owning all land, public land auctions have been an important channel for developers to acquire land for property development, apart from private-led urban regeneration.  From year 2003 until now housing prices recorded a fourfold surge, whilst the annual supply of new housing units through land auctions has been the slowest ever.  Why do developers not bid more land?  This study proposes an explanation based on the analysis of the change in the land sale mechanism since year 2003 in Hong Kong.  Before 2003, land auctions could fail if no bid exceeds the government’s reservation price.  Under the new mechanism land will not be auctioned until a developer initiates the sale by committing to an irrevocable bid acceptable to the government, but the initiating developer receives no benefit of having a guaranteed purchase during the auction.  This new pre-auction mechanism, namely the Land Application List System in Hong Kong creates a typical problem of free-riding among developers and inter alia leads to the undersupply of new housing despite the skyrocketing housing prices.  We test this explanation by drawing a less trivial implication from the institutional change: ceteris paribus the new pre-auction mechanism would make the developers more likely to coordinate with each other to internalize the free-riding problem. Thus, we hypothesize that likelihood of developers having joint-bid should be higher after the implementation of the new pre-auction mechanism. The results of probit model confirm our hypothesis.

Job Assignment, Transparency, and Social Comparisons
Katarina DANKOVA
University of Canterbury

Do workers’ concerns for equity depend on their perceptions about the fairness of the job assignment process? Consider a firm where the employer has to assign one worker to the low-productivity job and the other to the high-productivity job. In the absence of interpersonal concerns, the employer should offer a higher wage to the worker in the high-productivity job. Since workers’ perception of fairness may depend on the wage paid to their co-workers, the worker in the low-productivity job might consider the wage disparity to be unfair and he may reject the wage offer. The paper explores 1. whether workers in the low-productivity jobs indeed react to wages paid to those in high-productivity jobs; 2. whether the perceived fairness of the job assignment procedure mitigates or exacerbates the inefficiency associated with rejections; and 3. whether employers take into account the importance of job assignment procedures and compress wages when the procedure seems less fair. This research has implications for organizations’ wage policy (e.g. wage secrecy) in order to avoid wage comparisons that may result in diminished performance of the firm.

The experimental design is nested in a three-player ultimatum game with one proposer and two recipients assigned to two different jobs represented by different-size pies. The proposer decides on the wage offer for each recipient.  Each recipient is informed which job he has been assigned to and is also informed about the other recipient’s offer. The recipients then state their minimum acceptable offers which determine if the actual offer is accepted or rejected.

The process of assignment to a job varies across treatments. In all treatments the recipients take part in a general knowledge quiz. In the first treatment the assignment to jobs is random. In both the second and the third treatments the proposer, who knows the relative quiz performance of the recipients only in the second treatment, assigns the jobs. I test whether recipients’ behavior depends on the assignment procedure and whether they are sensitive to the other recipient’s offer. I also test whether the proposer compresses wages in the situation when the job assignment procedure seems less fair.

Understanding the Disproportional Representation
in Chinese Highest Political Authority
Xueqing FU, Li-an Zhou, and Xiaochen Xie
Peking University

The Central Committee of Chinese Communist Party (CCP), as China’s top political decision-making body, plays a vital role in national policy making processes. For example, the famous “Reform and Opening” strategy, which directly contributed to an extraordinarily high growth rate of 9.9% from 1979 to 2009, is prescribed by the Third Plenary Session of the 11th Central Committee of CCP. Though previous studies analyze a wide range of factors that serve as institutional incentives in shaping the cadre management system, they’ve never addressed the disproportional representation in Chinese highest political authority. However, that more than half of the members come from 3 provinces out of 34 in China must somehow suggest different policy outputs and have different policy impacts.

This study departs from previous ones in four important aspects. First, instead of providing another test of factors influencing the advancement of cadres, we investigate the driving forces of the disproportional representation in the Central Committee of CCP. Second, unlike most of the public administration literatures focusing on representativeness in terms of race and sex in a western culture background, we address the representation of the highest authority in China in terms of origin which possesses more than symbolic importance in “Earthbound China”. Third, we are the first to make use of a new detailed biographical dataset of Central Committee (CC), Alternate Central Committee (ACC), Politburo Committee (PC) and Politburo Standing Committee (PSC), to quantify the social network of each member in terms of alumni relations and colleague relations among the highest officials in China, instead of roughly defining anecdotal political connections as factional ties. Fourth, we are the first to depict the patterns of representation of central committee members in China from 1982 to 2012 for the 12th through 16th Party Congresses, which reflect the changing criterion of the distribution of power and influence in economic policy making.

Social Interaction, Internet Access and Stock Market Participation:
An Empirical Study in China
Steven Shiqi GUO and Pinghan Liang
Southwestern University of Finance and Economics

Social interaction plays an important role in transmitting relevant information to potential investors. However, the informational role of social interaction might be affected by other information channels, which is to a large extent ignored in previous studies. Using a new household finance survey data covering more than 8,000 Chinese households, we investigate the role of social interaction in individual stock market participation decisions. We find that a better access to Internet and higher degree of social interactions both increase stock market participation, but they substitute for each other. The marginal effect of social interaction on stock market participation decreases as households have access to Internet.

Several attempts are made to alleviate the endogeneity problems caused by omitted variables and the reflection problem. And after breaking down our sample into different subsamples, we show the persistence of the substitution relationship of the social interaction and Internet access, while the magnitude of the strength of the two channels vary across urban-rural areas, high-low education levels and high-low income levels. The result is also robust after we introduce more strict definitions of stock market participation.

For households without access to Internet, having the degree of social interaction above the median level is associated with a 2 percentage points increase in the likelihood to participate stock market. This finding supports the informational effect of social interactions. Moreover, we also identify a social multiplier effect of social interactions: sociable households living in the communities with higher stock market participation are more likely to invest in stocks. In particular, participation is significantly promoted by the positive investment performance and break-even cases in the local community, while the effect of negative investment performance in the neighborhood is insignificant.

Resettlement, Human Capital and Culture:
How Did It Matter for Development?
Ekaterina Borisova, Andrey Govorun, Denis IVANOV,
and Brendan McElroy
National Research University Higher School of Economics

Our main research question concerns the influence of human capital and the cultural traits of people on economic development. The issue of causality arises unavoidably in such a setting. Russian history is full of natural experiments during which people with high human capital were relocated exogenously. We consider two specific groups, namely Old Believers and Russian Germans. First fled from the area near Moscow to remote parts of Russia in order to avoid religious persecution in the 17th century. People from the second group were attracted to specific areas on the Russian frontier since the 18th century. They were also deported to Siberia and Central Asia during WWII.

Both groups were known for their relatively high human capital, mainly due to religious reasons. Old Believers split from the government-supported church because of reforms of liturgy and books. Thus more educated and less conformist people self-selected into Old Believer communities. Many Russian Germans were Protestants to whom literacy was necessary for Bible reading.
There is no reason to believe that either Old Believers or Germans were able to choose best locations to live in. Old Believers were made to settle in isolated areas where Tsarist troops were less likely to overtake them. Places for German colonies generally were selected arbitrarily by bureaucrats, and often, as during WWII, by a government indisposed to Germans. These conditions make a good natural experiment.

To study the effect of these groups on long-term economic development, we consider a battery of dependent variables, including agricultural productivity, manufacturing development, and social capital. Dependent variables may come from both Imperial and Soviet era and present-day sources. We also pay special attention to the data on Russian populations living in the vicinity of the colonies of Germans who were relocated in 1941, since this case allows us to study the long-run effects of cultural and human capital spillovers between migrants and the indigenous population.

Labour Market Flexibility and Rural Migration in China:
An Institutional Analysis of Hukou System
Zhangfeng JIN
University of Nottingham

Hukou System has dramatically reduced labour mobility across districts and occupations over the past half a century. The reversing trend is not significant until recently, when the Chinese Government embarks on speeding up the Hukou reform. The paper aims to examine the impact of labour market flexibility on rural migration from the perspective of Hukou reform in China, theoretically and empirically. The theoretical framework is an extension of Fields and Song (2013) to take into consideration urban migrants. In addition, our measurement of Hukou, defining more relaxed Hukou as the situation that unregistered migrants have larger probability to converge to local Hukou holders, is more precise and intuitive than Bao et al. (2011) and Zhang and Tao (2012).

The key empirical findings demonstrate that more relaxed Hukou deters rural migration as well as decreases the return to rural migration regarding wage rate, which is justified within our theoretical framework and is also consistent with the arguments by Stark and Fan (2008) and Ito (2008). The intuition behind this is that more relaxed Hukou is also accompanied with the influx of (relatively high-skilled) urban immigrants, the advantageousness of who offset economic benefits out of loosening Hukou and even deteriorate the employment outcomes of rural migrants. To some extent, the study also justifies the gradual reform rather than radical reform of Hukou system in Current China.

Who Value Their Lives More?
Evidence from Antihypertensive Drug Market in Korea
Joonhwi JOO
University of Chicago

We estimate the demand function of antihypertensive drug market in South Korea, using the random coefficient logit model by Berry et al. [1995]. The mean of the own price elasticity estimates is -2.741, and the cross price elasticity estimates are very close to zero.  We combine the demand estimates with the medical research on the life expectancy comparison of hypertensives to normotensives. By doing so, we identify the distribution of the willingness to pay for extending 5 years of life associated with the antihypertensive drug demand.   We find that the median of the distribution of the value of 5 extra years of life is only about
$1,400, and that the willingness to pay increases with income.  These findings suggest that the current 70% subsidy of antihypertensive drugs by national medicare is a cost-effective way to extend people’s life.  Furthermore, the subsidy has redistributive effect because high-income individuals are less sensitive to drug prices.

Reorganizing Corporate Reorganization Legal theory
Tel-Aviv University

Is it time to re-examine and improve corporate reorganization contemporary legal theory? Corporate reorganization legal mechanism is designed to help preserve financially (and even economically) troubled corporations from liquidation. However, and according to the reigning legal theories, corporate reorganization is considered as a contractual debt-collection mechanism aimed for the benefit of creditors (and only creditors) or stakeholders at large. This debt-collection conceptualization leads the corporation to face an ‘ultimatum’: reorganization or liquidation. It is also one of the sources in which corporate reorganization theory is incomplete.

Analyzing corporate reorganization contemporary legal theory gives evidence to at least three main theoretical gaps. The first is a “systematic” gap, by which the process of reorganization becomes liquidation, theoretically and practically. Utilizing macro-organizational as well as institutional theories provides us with a novel and a fuller account of this legal systemic gap. For example, one element evident in this systemic gap is the missing environment in the legal theory analysis, a prominent feature and a key tool of analysis in the institutional and the organizational theories. This interdisciplinary approach takes its roots and builds on Oliver Williamson’s work, amongst others, according to which Law can and should inform and be informed by institutional economics and organizational theory. The second gap, not less important, is the “forgotten” corporate entity, by which the corporation is almost non-existent in the legal analysis and doctrine. The third gap is the missing corporate objective, as if there is no genuine need for a corporation, undergoing a reorganization process, to pursue a direct and a clear objective.

When it comes to corporate reorganization legal theory, there is a need to think out of the “traditional theoretical box”. Utilizing organizational and institutional theories can advance us with new insights, new conceptualization, and eventually with a much more elaborate and a deeper theory and mechanism. It is time to reorganize corporate reorganization theory.

The Value Added of Aid Managers
London School of Economics and Political Science

Aid effectiveness depends on the inputs of recipient countries and donor agencies in executing development projects. Aid managers can play a crucial role in the success and relevance of projects through their ability to propose, design and supervise development interventions. In this paper I test this hypothesis by joining the World Bank Project Database with detailed manager information and quantify managers’ project contribution through the Value-Added approach. These estimates show cross-manager and cross-project variations are approximately the same.

In order to improve aid effectiveness, I evaluate: 1) a “big reform”, which increases average project success by replacing the 10% worst-performing managers with the mean; 2) a “small reform”, which affects project success variability by modifying the manager-country assignment rule. Firing managers increases the average success of treated projects by 34% and the overall economic returns generated by the World Bank of 1.6 billion dollars, equivalent to a 5% increase relative to the observed figure. Alternative country-manager assignment criteria affect the standard deviation of project success by 18%-27%.

The Impact of Workplace Breastfeeding-Friendly Policies
on Women’s Feeding and Labor Market Outcomes in the U.S.
Siying LIU
University of Pittsburgh

Since 1995, many states have passed laws requiring employers to provide unpaid break time and a special non-bathroom space for working mothers to express milk. This paper uses plausibly exogenous variation in the timing of state laws to evaluate the causal impact of the breastfeeding support at the workplace on the incidence and duration of breastfeeding and the extent and intensity of mothers’ labor-force participation. Preliminary results show that the laws increase the incidence and duration of breastfeeding; mothers’ labor force participation rate decreases, and conditional on being employed, they work more hours and take less leave of absence. The results could be explained by the differential job opportunities faced by the advantaged and disadvantaged mothers. 

Obstacle or Advance?  Social Movements and Rural Development
Maria del Pilar LÓPEZ-URIBE
London School of Economics and Political Science

Peasants will sometimes try to fulfill their needs and claim more resources from the state by organizing into national movements. In some contexts, these movements can urge the state to dictate favourable policies for them at the expense of the rest of society, frequently involving illegal actions like land invasions. However, these organizations may also create important social capital and networks, establishing new political parties and enforcing the law where state representatives are absent.

Existing theory states that peasant organizations might have an important effect on development in rural areas through two different and opposite mechanisms. Olson (1982) emphasized the propensity of collective action activities, like peasant movements, as a special interest group that presses for preferential policies, imposing disproportionate costs on the rest of society and reducing private sector incentives. On the other hand, Putnam (1993) views this type of organizations as a source of generalized trust and social ties that triggers governmental efficiency, economic performance and productivity.

These theories lack systematic empirical evidence, owing to the difficulty of obtaining disaggregated historical data that connects peasant organizations, collective action activities and economic indicators. Literature about peasant organizations is extensive in disciplines such as sociology and political science (Popkin, 1979; Hobsbawm, 1973, 2001; Landsberger, 1969; Stavenhagen, 1970). In economics, most of the empirical literature has concentrated on collective action experiments at a micro-level (Ostrom, 2000 and 2009). However, there is no work that tries to quantify the connection between social movements and agricultural development or that explains why these movements rise and/or decline. This project will use a municipal-level panel data set, drawn from both historical and modern Colombia, to study the origin and cycles of the national peasant movement (ANUC) and the relationship between their organization and development in rural areas.

The research agenda about peasant movements and development is going to address the following questions:
1. Are the selective incentives (property rights) given to peasants crowding out or in cooperation and collective action activities?
2. Why do governments organize a peasant movement?
3. What is the effect of peasant organizations on economic development, peace and democratic participation?

The Political-Jurisdictional Coase Theorem
RMIT University

Following the literature on political integration, the size and scope of nations, and geopolitical boundary endogeneity, this paper proposes an application of a ‘political-jurisdictional Coase theorem’ to the problems of political conflict and jurisdictional organisation. Most political interpretations of the Coase theorem take for granted the prevailing political system (i.e., majoritarian, monopolistic) and describe Coasean bargains within it—for instance, how post-vote trades improve efficiency, or otherwise, given transactions costs and institutional rule-constraints. But they do not take a wider lens to the problem—to how the encompassing political-jurisdictional system itself is an assignment of property rights and to how adjustments of this very system can be evaluated in light of the Coase theorem. Coase himself claimed that his theorem’s “logic cannot be questioned, only its domain.” It is my purpose to take up this task and consider whether its domain can be extended to explain how political systems and jurisdictions change.

This political-jurisdictional Coase theorem applies at all levels of jurisdiction, but especially to nation/state incongruities e.g. matching maps to peoples (re-bordering), matching peoples to maps (ethnic cleansing), or proposed non-territorial responses (national-cultural autonomy). We first examine a model of ‘territorialised’ transactions costs (e.g. rebordering/secession costs for jurisdictions and mobility costs for citizens) that is apropos to federalism and secessionism, and protection of regionally concentrated minorities. We then consider the relevance of the territorial Coasean model in a world of ‘deterritorialised’ transactions costs, i.e., one of ‘virtual’ states, national personal autonomy, non-territorial federalism and secessionism, and protective of regionally dispersed minorities.

We can reinterpret many episodes from history in light of the political-jurisdictional Coase theorem. My claim is that the problem of the nation-state is simply an expression of combined ‘non-optimal allocation of political rights’, ‘prohibitive transaction costs’, and/or ‘perverse income/wealth effects’, and can be explicated within the Coasean framework. The upshot of this work is that when ideal Coase-theoretic conditions are met (i.e., unprohibitive transaction costs, etc.), the political-jurisdictional system is evolvable and robust to change.

To Friends Everything, to Strangers the Law?
An Experiment on Contract Enforcement,
Group Identity, and Trust Relations
Max Planck Institute of Economics

How does shared group identity affect trusting and trustworthy behavior when contract enforcement is weak? While the role of shared group identity in facilitating trust-based relations when legal institutions are weak has been explored in the work of Greif (1993) and Landa (1981), it remains an open question whether more trusting and trustworthy behavior takes place because of factors that come with shared group identity (e.g. higher levels of communication, expectations of future interactions) or because of shared group identity per se. This study addresses the gap in the literature through a laboratory experiment that isolates the effects of shared group identity on trust and trustworthy behavior when contract enforcement is weak. It employs a minimal groups paradigm wherein participants are randomly and anonymously divided into two groups on the basis of a criteria that is unrelated to the task they are to perform in the experiment (Tajfel, Billig, Bundy, and Flament, 1971). Preliminary findings show that trusting behavior improves as contract enforcement increases but is not affected by shared group identity. However, trustworthy behavior under low levels of contract enforcement is more likely to occur in interactions with in-group members than out-group members.

An Optimal Innovation Incentive: A New Assessment
Bar Ilan University

Intellectual property law (hereinafter IP) is the main incentive mechanism governing innovation policy. Since innovative activity is characterized with economic market failures, it is well understood that without government intervention, the incentives to invest in such an activity will be inadequate. IP law gives innovators the right to exclude others from exploiting protected works and inventions, but by doing so (i.e., by giving the innovator monopoly rights) it creates deadweight loss, which is one of the main drawbacks associated with this law system.

Thus, in order to create a regime that minimizes the social costs arises from it, the literature discussing the ’Optimal Innovation Policy’, focuses on different kinds of variables. For instance, scholars have debated about the proper breadth and length of the IP rights; Some have suggested to design a special enforcement system (for instance by using compulsory licenses) in order to control the breadth of the IP right, while others have called to alter the IP system so it would suit different innovation environments, and the list goes on. The debate went even further when academics called to replace the IP regime with other incentive mechanisms such as prizes and research contracts, both based on public finance system.

In this research, I argue that the literature regarding the ‘Optimal Innovation Policy’ has overlooked a significant relevant component- Tax regime. I argue that both regimes are closely related with defining an optimal innovation incentive. Hence, I suggest that scholars have mistakenly analyzed both regimes separately and independently. For instance, many countries and scholars refer tax expenditures (namely tax incentives) as a tool to spur innovation, but without regarding an existing parallel incentive regime- i.e. IP. This, I claim, can lead to an unwarranted result, such as an over incentivized innovation policy.

I analyze the interaction between both regimes, first, given that IP defines the innovation incentive optimally and then given that it has defects need to be fixed with tools outside IP. I ask whether the tax system has a special role under each of these premises, and I show that the answer relies much on an institutional analysis.

On the Institutional Origins of Regional Political Cultures across Spain
University of Vigo

Do political institutions leave a cultural legacy? This paper reveals the existence of systematic differences across Spanish regions in terms of political culture and investigates the origins of this diversity. Relying on a growing literature on the highly persistent cultural legacy that formal political institutions leave, the article explores Spanish history and exposes the substantially distinctive political paths that regions followed before the unification processes of the 18th and 19th centuries. It studies two different periods in Spanish history that permit us to establish an interregional comparison in terms of political institutions. In each period, we can find institutional features that present significant differences across regions. Specifically, two issues are considered: experiences of municipal autonomy in the High Middle Ages and levels of constraints on the executive in the Modern Ages. The relevance of these political experiences as cause of that cultural diversity is tested by exploiting regional-level and individual-level data on political culture. Results show robustness even when other possible origins, such as past economic development, past human capital or geographic variables, are taken into account.

Participation in Regulatory Drafting and Downstream Compliance
Markus David TAUSSIG
National University of Singapore

Our project aims to assess the current participatory process that exists in Vietnam for draft legislation and regulations, testing whether participation by businesses can improve labor rights and safety.  We use an RCT to analyze the downstream compliance to an important chemical storage regulation of four randomly assigned groups of firms: 1) those simply receiving a presentation about the regulation; 2) those invited to provide comments on the draft regulation; 3) those invited, but also subsequently notified of the response of the responsible regulatory agency to their comments; and 4) a control group not invited to participate, but instead receiving a placebo.  After the final regulation is promulgated, the team will monitor the firms in all four groups to test compliance with the final legislation.  Because safety requirements for hazardous chemicals are readily observable, we will have clear evidence of whether participation led to downstream compliance and which of the three mechanisms is most responsible.

Managing Marriage Migration: An Empirical Analysis of the Impacts of
Regulatory Policies vis-
à-vis Other Determinants of Marriage Migration
from Developing Countries to South Korea
De La Salle University

Marriage migration is slowly reshaping the socio-demographic, economic, and political landscape in East Asia, including Japan and South Korea. This phenomenon is characterized by large scale and systematic recruitment and migration of women from developing countries to these developed countries through the means of or for the purpose of marriage. Unlike labor migration, the drivers and determinants of this phenomenon are less well understood. Migration theories attribute labor migration to wage differentials, differences on the supply and demand of labor and capital, push and pull factors in sending and receiving countries, and the socio-economic structure of developed economies, among others.  While it is implicitly assumed that similar socio-economic considerations drive marriage migration, few if any published studies as of this writing have attempted to conduct macro-level empirical studies to test this claim.

This study seeks to address this gap and will empirically examine how socio-demographic, economic, political, geographic, and regulatory policies in both sending and receiving countries influence marriage migration from developing countries by examining the case of South Korea. It will develop an empirical model that will integrate these factors and use this to identify, assess, and compare correlates of marriage migration and their impacts. 

Of special interest are the impacts of various regulatory and support policies adopted by both sending and receiving countries vis-à-vis the other determinants. Since the early 1990s, the governments of receiving countries such as South Korea and sending countries like China, and the Philippines have attempted to control marriage migration by adopting policies that restrict, regulate, and even ban related activities. Despite regulations however, marriage migration from developing countries still persist suggesting that the incentives outweigh the legal and other costs of such activities. This observation will be empirically examined in this study. The results will be useful in developing migration theory, in improving our understanding of marriage migration, and formulating appropriate public policies to manage this phenomena.

Universal Service in a Wireless World
Georgetown University

In this paper I analyze the impact of the major telephone subsidy program Lifeline on the propensity of an eligible household to subscribe to the telephone service. The program provides low-income households with a discount on their monthly telephone bill. Lifeline was implemented in 1984 and initially it was available only to the households, which subscribed to the traditional landline service. In recognition of the mobile telephone alternative to landline telephone service and also in recognition of the low take-rates of Lifeline among eligible households, the Federal Communications Commission extended the benefits of the subsidy to the wireless telephone service. In the wake of this new policy, Lifeline subscriptions grew rapidly, and so did the costs of the program. The payouts under Lifeline have grown from $822 million in 2008 to almost 1.8 billion in 2011. The ballooning costs of Lifeline provoked considerable criticism of the program, calls for program reform, and even proposals for legislation to end the Lifeline program altogether or at least eliminate its wireless part.

In this project I investigate whether the Lifeline program, as it has evolved, has promoted the connectivity of American households, and I provide cost-benefit analysis. The theoretical framework is a structural model based on utility maximization. In my model, the consumer faces four alternatives (no phone, cell phone only, landline only, or both phones), and chooses the alternative with the highest utility. In the estimation, I account for potential endogeneity of prices and Lifeline benefits. The estimation relies in a unique database that combines public and proprietary household-level data taken from the National Health Interview Survey (NHIS).

The results reveal that higher amounts of the subsidy increase the propensity of eligible households to subscribe to the telephone services. The extension of the Lifeline subsidy to include prepaid wireless service has also attracted additional subscribers.  The policy experiment based on the estimates from the mixed logit model showed that if the wireless part of the program were to be eliminated, 147,024 households would cancel telephone services. If the Lifeline program were to be terminated altogether, then over one million households would give up telephone services. Based on these results of counterfactual experiments, I calculated only one out of eight households that receive the subsidy subscribes to telephone services because of the subsidy, other seven would have subscribed to the telephone services even in the absence of the subsidy; under the wireless part of the program, only one out of twenty households enrolled in the Lifeline subscribes to telephone service because of the subsidy, other nineteen are infra-marginal subscribers. These results indicate that while the program is promoting the goal of universal service and increasing the propensity of an eligible household to adopt a phone, it suffers from infra-marginal subscribers.

Linking Property Rights, Capital Accumulation and Quality of Life
among Urban Poor in the Philippines
Mark Anthony M. VELASCO
De La Salle University

Does the provision of land titles, as representation of property rights institutions, to the urban informal settlers affect access to credit and improvement of life condition? This has become one of the challenging questions in many developing countries confronted with the issue of improving quality life among those poor settlements in the metropolitan centers. The growing concern for the provision of secured property rights can be attributed to the failure of formal institutions to create relevant policies and programs on sustainable land tenure systems.

The study is anchored towards the broadening of our understanding on how the provision of land titles to the poor and informal settlers in urban centers create opportunities to access capital and improve life condition. The primary aim of the study is to identify and analyze the significant impacts of giving the informal settlers with land titles on their attitude, behavior and activities that leads to the improvement of their living situation. Through the use of comparative case study research design, both quantitative and qualitative methods were utilized to create pieces of evidence linking the ideas of property rights, access to capital and improvement in life conditions in the context of poverty alleviation in the Philippines. The former communities of informal settlers in Malabon, Paranaque and Laguna were chosen as cases of the study. Remarkably, the results show that there is a significant relationship between the provision of land titles with access to credit and activities that contributes in improving the lives of the poor.

In shaping policy frameworks in the Philippines, it can be meaningful to look at the process and approach to land distribution and provision. The perspective must not be narrowly tied to the distribution of land titles and relocation of the poor. Attention must be given on the mechanisms of utilizing property rights instruments to achieve it optimum intention. Moreover, the provision of land titles is not merely equated to the piece of paper but for economic institutions to accommodate the potential use of this legal instrument.  

Owner-Cultivator Legacies and Contemporary Economic Development in China
Danli WANG
The Chinese University of Hong Kong

In this article, we examine differences in the percentage of owner-cultivators in the rice-growing southern region and the wheat-growing northern region of China as a means to estimate the effect of private property protection on economic performance. Differences in the percentage of owner-cultivators are found to have generated significant variations in the protection of private property. During the agrarian era in China, the majority of wheat-growing owner-cultivators in the north possessed little bargaining power with the “extractive” local government over protection of properties. This contrasted to the majority of big landlords in the southern region, who did possess the leverage to do so. By using the percentage of owner-cultivators as an instrument for current private property protection, we are able to demonstrate the significant effect of private property protection on income per capita, further indicating the role of the land annexation in determining private property protection.

The Impact of Entrepreneurs’ Prior Experience on Firm’s Performance:
Evidence from Private Enterprises in China
Jingjing WANG
University of Missouri

What is the effect of entrepreneur’s prior non-market experiences on new-venture success, development, and performance? There is a robust literature on the impact of an entrepreneur’s prior experiences in a market context (Lazear 2004, 2005), finding that diverse experiences do have varied impacts on firm’s survival, outcome, and growth. However, entrepreneurship field knows little about its role in a transition economy, in which most entrepreneurs have worked only at government agencies, state-owned enterprises, collective farms, and other quasi-business entities before, broadly defined as non-market experiences in this paper.

I will use Chinese Private Enterprises Surveys (1991-2012) data to test the impact of both an entrepreneur’s firm related experience (working at state- and collective-owned firm/farms) and non-firm related experience (working at government agencies, public institutions, and army) on a firm’s performance. The underlying rationale is that an entrepreneur’s occupational history shapes his judgmental process (Knight, 1921), such as understanding of certain organizational arrangement’s limitations, foreseeing market potential during business travels, and being alert to chances of monetizing their entrepreneurial skills during privatization. In addition, since non-firm related experience is closely related with political connections, I also attempt to disentangle capability-experience effect and political connection effect in order to address endogeneity problem. Specifically, whether political status is ex post awards to competent entrepreneurs or entrepreneurs with strong political connections has better access to resources, financing, or monopolized industry, which will affect a firm’s performance, shaping seemingly proficient entrepreneurs.

This paper may contribute to our understanding of entrepreneurial phenomenon in transition economies by investigating prior non-market experiences of private enterprise owners. It may lend some insights to following research questions, such as who are China’s entrepreneurs (Djankov, Qian et al. 2006), driving forces of China’s economic reform (Huang 2008; Xu 2011; Coase and Wang 2012), and emergence and evolution of private enterprises from a planned economy (Nee and Opper 2012).

Clustering, Growth, and Inequality in China
Susan Xiyi YANG
(with contributions from Di Guo, Kun Jiang, Chenggang Xu)
The University of Hong Kong

One of the most striking developments during China’s reforms is the emergence of industrial clusters that thousands of specialized small towns become “world factories.” On the other hand, inequality in China has worsened rapidly that China becomes one of the most unequal economies in the world. This paper examines the impacts of China’s industrial clusters on growth and inequality in a systematic way. We construct a novel index to measure industrial clusters which captures key features of clusters developed under the institutional constraints in China. Based on this measurement, by using a combination of firm-level and county-level panel datasets from 1998 to 2007, we find clustering enhances economic and employment growth. In particular, counties, which have stronger clusters and clusters consisting of a more developed non-state sector, experience higher economic growth and more job creation. Moreover, within counties which have clusters consisting of a more developed non-state sector, rural-urban income inequality is substantially lower than in other counties, driven by the increased income of rural residents. The results stay robust after addressing the endogeneity issues by two-stage estimations and propensity score matching approach.

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|2010 Shanghai |2011 Chicago |2012 Beijing |2012 Santiago |2013 Xiamen|
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