Ronald Coase Institute

2015 Hong Kong Workshop: Abstracts

MAY 10-16, 2015


Clicking a link will scroll the page to the relevant section:

An Institutional Analysis of Pastoralists’ Adaptation
to Climate Change in Ethiopia:
Does the Rangeland Enclosure Policy Work?
Misginaw Tamirat ARFICHO
Humboldt University of Berlin

The effects of climate uncertainty on the pastoral dry lands of Ethiopia pose particular and difficult policy challenges. Ethiopia is highly vulnerable to drought that in the past has resulted in huge loss of life and property. These days, rangelands of the country are degrading at an alarming rate; to alleviate this problem and improve the livelihood of the pastoral community, the Ethiopian government has made an enclosure policy into effect. The purpose of the study is to understand whether the enclosure policy does improve the adaptive capacity of the pastoralists, the most vulnerable groups, residing on the rangelands.

The study focuses on the emerging changes on institutional arrangements, networks, collective action and the way they are relating to cultural values. Furthermore the mechanism(s) pastoralists organize livestock production and their relations to the biophysical environment and how they influence the way the rangeland responds to climate changes is the centre of the study. The theoretical and conceptual frameworks underpinning this research are informed by and build on the theories of institutions, adaptation, agrarian transformation, transaction cost, and common pool resource management. The framework for analysing socio-ecological systems will be employed as presented by Ostrom (2009).

The research will be undertaken in pastoral communities (Hadiya, Hamer and Borena) of southern Ethiopia. Generally, the sites (clusters) are selected such that the major agro-ecological, social, rearing practices, market access and demographic variations in the region will be included. This research uses a comparative case study design with a focus on patterns of adaptation in specific communities/socio ecological system. Three cases will be compared in their physical and technical environment, socioeconomic environment, policy and governance environment. Therefore, the research will target pastoral households, pastoral associations (formal and informal), the national and regional livelihood related administration and other stakeholders to the extent they had an influence on adaptation to climate change in the area. The findings may help contribute to how knowledge of the mechanisms shaping resilience (social learning, institutional architecture and communication) can best be marshaled to help decision-makers’ adaptation to climate change and sustainable economic development.

Floodplain Development and Downstream Flood Hazard
Andrew AYRES
University of California – Santa Barbara

Can the existence of institutions to manage floodplain development explain variation in flood damages across river basins? Do certain institutional forms perform better than others? And, if so, what determines which rules result from upstream-downstream bargaining?

The incidence of floods has changed over time in the U.S., and aggregate damages are trending upward. In order to understand the drivers of these damages, the appropriate geographical scale to consider is the river basin. The nature of a river basin is such that actions in one part of the basin affect users in other parts of the basin. Floodplain development represents a collective action problem because defensive structures impede a river’s lateral connectivity with its floodplain and thus increase flood risk downstream. Bargaining over collective institutions to manage development pits downstream users, who want to utilize valuable floodplains, against upstream users. These institutions include the rules and regulations governing who can develop floodplains, to what extent, and whether defensive infrastructure can be installed.

I use data on U.S. flood damages and floodplain development regulations from 1933 onwards to answer these questions. Flood damage data are organized at the basin level: the most aggregated level contains fourteen basins spanning the continental U.S., although they can be disaggregated to over 600 sub-basins. Across these fourteen basins, mean annual flood damages exhibit considerable variation, with a coefficient of variation of approximately 1.25.

One might initially assume that this variation can be explained by the different hydrologic regimes found in these basins, but Pielke and Downton (2000) show that hydrologic factors do not tell the entire story. They attempt to explain damage trends over time using purely hydrologic variables and are only partially successful; they conclude that societal factors, including increasing wealth and floodplain development, have a role to play. Although that study does not consider variation across basins, hydrologic factors cannot completely explain this cross-sectional variation either. Controlling for hydrology, housing values, dam and levee locations, and other factors, significant variation remains. Accordingly, I can exploit variation across basins in flood damages and governance regime to discover which regimes are most effective at limiting damages.

The Future Is in Your Hands:
Active Pension Decisions in the Slovak Republic
Zuzana BROKEŠOVÁ and Jana Peliová
University of Economics in Bratislava

Demographers’ forecasts regarding the future age distribution of the population have strong effect on sustainability of state pension systems and future pension claims. The discussions are very dynamic, especially in counties as the Slovak Republic, where accumulation of savings for retirement in private funds by individuals does not have a long tradition.  Based on the negative shifts in population curve flowing into increasing number of retirees in comparison to the economically active population, politicians try to disburden state pension systems and transfer a part of the responsibility for the future pension income to individuals. At the same time, political instability and unforeseeable changes of the system are sending confusing signals to individuals. But who are those who think of their future and make active pension decisions? Understanding factors that support individuals’ active pension decisions could help policymakers as well as companies to focus their efforts to the right direction and create strategies to address the campaigns and legislation.

The main aim of the paper is to define these factors. The study is based on the data obtained from the Household Finance and Consumption Survey conducted by the National Bank of Slovakia and coordinated by the European Central Bank in every Eurozone country in 2010. The sample consists of more than 2,000 households and 4,421 Slovak respondents. We analyze three specific forms of savings for retirement: voluntary participation on the second pension pillar, participation in the third pension pillar, participation in voluntary pension scheme or life insurance contract. Based on the results of the logistic regression, we conclude that the participation in active pension decisions is in general driven by the fact that individual is a women, has higher education, has the possibility of financial help from friends and family, has higher income, lives in household with financial wealth as well as with elderly members of the family.

Can the Licensing of Real Estate Agents
Reduce Price Dispersion in the Housing Market?
Bruce Wai Hong CHAN
The University of Hong Kong

Licensing of real estate agents has a relatively short history in Hong Kong. The Estate Agents Ordinance (EAO) was enacted in 1997. The licensure requirements aim to protect buyers and sellers in the housing market by ensuring that they are provided accurate price and quality information.  Since housing is heterogeneous, better product quality and price information can increase market transparency and allows the market to operate more smoothly.  Price dispersion should be lower in the housing market after the implementation of the EAO.  Price dispersion is a deviation from the law of one price - a symptom of high transaction cost. 

Detailed examination of the institutional settings in the Hong Kong housing market suggests that licensing of real estate agents has an unintended consequence of increasing price dispersion.  Before the enactment of the EAO, real estate agents were not restricted from speculating on the property they list. If an agent believes that the asking price of a property owner he/she represents is below the market, he/she may buy the property through a third person or limited company (to hide his/her identity) and resale it at a price closer to market price.  Since the real estate agent (buyer) is a speculator, he/she will sell before the transfer of title. When this happens, there will be two transactions, one below market and one close to market. The two transactions usually occur within a short period of time (sometimes within the same day). In any case, the close to market price transaction will take place.

After the implementation of the EAO, real estate agents are prohibited from buying the property they list without letting the seller know the buyer’s identity. A profit-maximizing agent will persuade home owner to under-quote and prospective home buyer to over-pay so as to increase the chance of transactions. This price distortion function of the real estate agents is further reinforced by reduced competition amongst real estate agents after the licensure requirements.  Since the buyer of an underpriced property may not quickly resell in the market, thus the close to market price transaction may not occur.

Coasean Perspective on Semiformal Rights Designation
among Waste Pickers in the Philippines
Mark Hansley Y. CHUA
The University of Hong Kong

In a dumpsite setting, how would a change from an apparently open-access regime to a more formal rights-designation system affect how waste pickers sustainably retrieve recyclables? This paper explores this question on the basis of the Third Coase Theorem. This theorem, first mentioned by Coase (1988) as recognized by Cheung (1990), holds that transactions need only some form of delimitation of rights to operate, wherein transaction cost is lowered enough. Payatas, an originally open dumpsite in the Philippines since the 1970s, is taken as a case study. In 2004, it became a controlled dumpsite under a semi-government body, Payatas Operation Group (POG). As one of its improvement measures, POG helped the organization of the 2,000 and so waste pickers in the dumpsite into 13 associations which have gained designated areas and time slots for scavenging using a “No ID, No picking” policy. These rules regulate and at the same time assign a degree of exclusive rights to 13 associations to mine the dumped materials. The visible consequence has been the reduction of fights among competing waste pickers, efficiency in recovery—despite the reduction of recyclables in the dump due to environment awareness campaigns—and some innovations. Other preliminary observations suggest that simple access restriction is not enough to make the system viable. The state or other external groups also had to introduce either directly or indirectly, more than financial, non-monetary measures lowering further transaction cost to sustain the system and improve the welfare of the pickers themselves.

Trust and Trustworthiness in Experimental Organizations
Giuseppe DANESE
Universidade Católica Portuguesa (Porto)

We present the results of a laboratory experiment designed to investigate the effectiveness of moral suasion and monitoring in promoting: (i) profitable, but at the same time risky, entrustments of assets to a manager from a group of investors earning their endowment through real effort; (ii) a higher payback for those investors who entrust more assets to the manager. The first is our measure of trust of the investors in the manager, while the second is our measure of the manager's trustworthiness. We find that simply introducing a statement saying that the manager is held to an honourable behaviour (moral suasion) significantly increases the trust of the investors in the manager. Monitoring also increases trust, but only in the case in which the manager is not aware of the experimental identity of the monitor. The manager is trustworthy, i.e. he returns more points to those players who have entrusted more points. The manager's trustworthiness is unaffected by monitoring and moral suasion.  

How Does the Non-Tradable Share Reform
Affect Listed Firms’ Performance and Stock Prices?
Feifei FANG

Xiamen University

At the beginning of the establishment of China’s stock market, a split share structure was created. Shares were divided into two types: tradable shares such as public shares, and non-tradable shares such as state shares and legal person shares. According to statistics, almost two thirds of the shares were non-tradable, and the average shareholding ratio of the largest shareholders was 43% in 1992-2004. This structure caused several problems. Firstly, since the stock price was regarded as a signal of a list firm’s profit status and business capacity, the price of non-tradable share transfer brought in inaccuracy and noise. Moreover, it’s impossible to stimulate and restrain the majority shareholders and managers if they held most of the shares that are not tradable on the market. Consequently, this structure made the market resource allocation inefficiently. In 2005, to address the problems caused by non-tradable shares, a reform was introduced to convert these shares. The main goals of the reform include: (1) stock prices can accurately reflect firm performance; (2) hostile takeover of a firm becomes possible if the management is incompetent; and ultimately, (3) the allocation of financial resource becomes more efficient.

Surprisingly, there has not been systematic empirical evidence on the actual impact of the non-tradable share reform on firm performance and stock prices. In the current study, we use the listed firm dataset for 1990-2013 (CSMAR database) to help shed light on this issue, by exploring the time variation in approving the share reform across different firms. Assuming that the reform has the same influence on every firm, the explanatory variable is a dummy variable as indication of reform, which takes the value of 1 if a firm has reformed in year t and 0 otherwise. We use several firm performance measures such as ROE and ROA, as well as stock market measures including Tobin’s-Q as our dependent variables. We also control for other firm level variables, as well as firm fixed effect and year fixed effect. In addition, we further explore the variations in the reform’s impact, depending on the age of the reform, the change in the proportion of tradable shares, and the initial importance of state shares. Finally, we adopt the instrumental variable approach to address the issue of endogeneity.

Money or Performance?
What is Making Public-Private Partnerships a Global Trend?
Ana Luiza FERREIRA, Dalson Brito Figueiredo Filho,
and Ricardo Borges Gama Neto
Universidade Federal de Pernambuco

Public-private partnerships (PPPs) are the trendy answer to governments’ difficulties and needs from advanced societies to the developing world. PPPs might be a one-shot solution for governments to (i) tap into private sector capital. and (ii) better control private partners through performance-based contracts, according to which payments are withheld until the asset is built and operated to standard. In fact, access to private capital and performance-based contracts are two complementary characteristics distinguishing PPPs. Yet, under some circumstances, the enthusiasm for the possibility of gaining access to large amounts of private resources may outshine the performance aspect of PPPs.

This paper tests the hypothesis that developing countries are designing their PPP institutional frameworks targeting mostly the capital aspect, while high-income economies are attracted to PPPs based on the possibility of enhanced incentive structures for contracting with the private sector. The research design employs a mixed method approach by combining an automated content analysis of the websites of PPP institutional units in approximately 60 countries, and a logistic regression to estimate the effect of a country’s GNI per capita on the probability of building an institutional framework for PPPs aiming for performance. The dataset was built based on the list of PPP institutional units around the world provided by the World Bank’s Public-Private Partnerships in Infrastructure Resource Center. Expected results include that developing countries are directing their attention to PPPs as a solution for unlocking capital in the short term and overlooking the aspect of improving performance in contracting with the private sector, while high- income countries are emphasizing performance.

Assortative Matching and Persistent Inequality:
Evidence from the World’s Most Exclusive Marriage Market
Marc Goñi
University of Vienna

How much do search frictions affect the strength of marital assortative matching? Assignment theory suggests a strong link. This paper is one of the first to provide empirical support for this prediction. In the nineteenth century, for seven months each year, Parliament was in session and the British elite converged on London. Their offspring participated in a string of social events designed to introduce rich and influential bachelors to eligible debutantes. This “matching technology,” known as the London Season, strongly influenced who married whom. After the death of Prince Albert, royal parties were cancelled for three consecutive years (1861-63).

I exploit this exogenous shock to demonstrate the importance of the matching technology. Using a combination of hand-collected and published sources of information on peerage marriages, I find that the cohort of women affected by this interruption were 80 percent more likely to marry a commoner and that their spouses were markedly poorer. Geographical distance between spouses’ seats also shrank, indicating that local markets became a more important source of partners. In addition to Prince Albert’s death, I also use changes in the size of the marriageable cohort as a source of identifying variation.

I then evaluate the implications of marital sorting for social mobility, inequality, and education. Comparing observed marriage patterns to a counterfactual in which there is no Season, I find that between 1851 and 1875, the rate of entry of newcomers into the aristocratic elite would have been 30 percent higher without this institution. Overall, the Season was important in sustaining the English nobility’s role as an unusually small, exclusive, and rich elite. Highly effective assortative matching among the English elite also had important long-run implications for inequality and investments in education. I show empirically that, in a cross-section of counties, marital sorting and inequality of landownership reinforced each other. In addition, concentrated landownership reduced investment in education in England and Wales.

Sworn Spinsters: An Economic Explanation of Celibacy
Rufei GUO
Chinese University of Hong Kong

Why do some people never get married? During 1860-1930 in southern China, a group of women took vows of celibacy. They were called Sworn Spinsters. For a father to realize income from his daughter, he could either marry her off to earn a lump sum bride price, or let her work to earn him a stream of income. The rise of mechanized sericulture made the second option potentially profitable. The vow of celibacy taken by Sworn Spinsters served to enforce fathers' property rights on their working daughters' income. Girls took vows of celibacy only if the enforcement cost was sufficiently low. I have identified regional and family-level variations in enforcement cost and tested the theory against historical facts. Various local customs are also consistent with the enforcement explanation.

Tenant Game, Heterogeneous Factors, and Contractual Matching
Yiming HE
South China Agricultural University

Why would the sharing contract be chosen in agriculture? In order to enforce the sharing contract, the parties have to measure the heterogeneous factors of production. But the measurement is costly. When it is transformed into transaction costs and the wage rate reaches certain condition, the conclusion that the sharecropping contract has the same efficiency as the fix-rent contract can be proved. What’s more, if the game theory model relaxes the homogeneous factor assumption, then we can get the hypothesis: low quality land and high ability labor are matching with the sharecropping contract; by contrast, high quality land and low ability labor are matching with the fix-rent contract. Basing on it, it proves that the fix-rent contract is the best choice under the symmetric information structure and the sharecropping contract is the best arrangement in the asymmetric information environment. At last, this study uses the historical empirical data from Professor Buck’s research about 2866 farms in 7 provinces of China in the earlier 20th century to test implications of the theoretic hypothesis.

Economic Model of Parent-Child Interaction and Child Maltreatment
Jun Hyung KIM
University of Chicago

Why do parents spank their children, and what effect does it have on child outcome? I propose a model of parent-child interaction that shows how parenting strategy relates to a parent's prior experience, knowledge and beliefs on parenting, and observable child outcome. In my model, an altruistic parent chooses an amount of costly effort to produce a parenting style that motivates the child to choose actions that lead to self development in human capital. Parenting style is defined as transferable utility to the child that can compensate the disutility of the child who does not internalize the long-run benefits of human capital. Specifically, parents have access to two different technologies: 'spanking' and other punitive parenting (similar to authoritarian parenting, in the sense of Baumrind (1968)) is produced at no cost of effort, while 'positive' parenting (Baumrind (1968), Arnold et al. (1993)) or 'discipline' is produced with costly effort. The child can shield itself from punitive parenting by slowly decumulating the love the child has for the parent ('relationship capital'), which reduces the parent's influence over the child in the long run. The model can explain the disparate evidence on the correlation between parent’s use of spanking and negative child outcome. Also, it explains the historical shift from punitive parenting to disciplined parenting, or using the language of parenting literature, from authoritarian parenting to authoritative parenting.  The model also points out a possible trade-off in banning corporal punishment, and suggests that current debate on spanking should be shifted to improving parent’s skill in producing more sophisticated parenting styles. The model is found consistent with evidence from a randomized experiment which intervened in parent’s parenting skills.

Who Provides Public Services in China, and When?
Selective Reversal of Privatization in Public Service Sectors
University of Wisconsin – Madison

In the 1990s, China opened up its non-strategic public services to private providers. Private services quickly expanded in these sectors over the years, but private coverage remains limited to areas where private firms can generate revenues, and quality of private service is not ideal. In the 2000s, to correct for these common problems caused by private provision of public services, the Chinese national and local governments launched a series of policy reforms to the original privatization plan. Examining policy changes in four sectors—the postal services, public transportation, wastewater treatment and garbage treatment—puzzling variation emerges in both direction and intensity of government strategies toward private firms. Privatization was reversed and private property rights were violated in some sectors and localities, while privatization deepened and private property rights protected in others. What accounts for these variations across public service sectors and localities in China? Where has the state retreated, where has the state advanced, and why? This project seeks to answer the above questions by comparing the political and economic characteristics of different sectors and local governments.

This project utilizes a mixed-method design with both statistical analysis and case studies. It aims to broaden our understanding of how an authoritarian state defines and changes its boundaries in relation to the market and society as well as the motivation and constraints the state faces in the process. It advances three bodies of interdisciplinary scholarship. First, it broadens the current literature on transitional economies by studying the political and institutional origins of an authoritarian state’s economic policies.  Second, it contributes to the literature on state-business relations by studying how the state’s political concern of legitimacy results in different interactions between the state and private businesses. The third body of literature is the politics of economic reform and private property rights in China. China’s economic growth without secure private property rights is widely seen as a puzzle. This project delves into the sectoral level to explain how the interaction between local government officials, state-owned enterprises, and private firms affect the condition of private property rights in a sector. This project is currently under fieldwork. I will present initial findings from case studies and content analysis.

How Can Credit Constraints
Influence the Profitability of Chinese Household Firms?
Microcosmic Evidence from China Household Finance Survey
Victor Jiewei LI
Southwestern University of Finance and Economics

This paper estimates the effects of credit constraints on Chinese household entrepreneurship utilizing the micro-data of the China Household Finance Survey (CHFS). The credit constraints are categorized into five types including business loans, mortgages, car loans, credit cards and overall constraints, then are directly introduced as dummy variables into OLS and duration models, as well as ordered Logit and Probit models, in the perspective of both present and previous periods. The primary results show that with the individual and household attributes controlled, the households with overall credit constraint, business credit constraint, car expenditure credit constraint, and credit card constraint gain lower profit, and the overall constraint decreases the probability of making up deficits and gaining surplus.  When a household faces the overall credit constraint and house expenditure credit constraint before becoming an entrepreneur, the profitability then reduces. This paper also finds that the credit constraint significantly decreases the enterprises’ likelihood of survival and profitability, and extends the waiting time of start-up. Based on the propensity score matching approach, we find that the credit constraint significantly reduces the profitability of the household firms.

Keywords: credit constraint, profitability, household firms, CHFS

The Colonial Origins of Income Differences:
China's Treaty Port System and the Development of Institutions
Yousha LIANG
Chinese University of Hong Kong

This paper studies the effect of property rights institutions on economic performance by investigating the effect of the treaty port system in China from 1842 to 1948. During this period, the opening of treaty ports led to very different property rights institutions across counties in China. Counties with easy access to treaty ports developed better property rights institutions; for counties far away from treaty ports, the property rights institutions were relatively poor. We then provide evidence that better property rights institutions have led to better economic performance to the present day. Moreover, the estimated effect of property rights institutions on economic performance is not sensitive to Buddhism, the minority ratio, and the average educational level.

Land Rights and Constitutionalism
Xiaoting MAI (with Chenggang Xu)
The University of Hong Kong

Political institutions that confine the power of the rulers are found to be of central importance for long run economic growth, financial development, and democracy (North et al., 2009; Acemoglu and Robinson, 2012). But where do such political institutions come from? Our hypothesis is that security of property rights over land is necessary for the emergence of constitutionalism.

This argument starts with the observation that land is a most important source of power.  It is therefore only when land rights are relatively secure could other social elites emerge as a possible constraint to the ruler, and only then would a ruler be forced to make concessions and allow limits on his own control.

In this paper, we attempt to investigate empirically the relationship between land rights and constitutionalism. However, there are no systematic data on cross-country historical land rights. Therefore, we first assemble a data set coding land rights for 28 countries from the year 1000 to 1900 (every 100 years from 1000 to 1700, and every 50 years from 1700 to 1900). We take current countries as the unit of observation. In addition to major countries in Western, Central and Eastern Europe, we also cover non-European countries such as China, India, Japan and the US. Focusing on several aspects within the bundle of rights, our land rights index captures the security of private land ownership (in particular, the rights of the elites to possess and transfer landed properties) in numeric form. This allows us to see clearly the long-term evolution of land rights and compare them across a wide range of countries.

For proxies of constitutionalism, we use the constraints on the executive extended by Acemoglu, Johnson, and Robinson (2005) based on the Polity IV coding, and the index of parliamentary activity quantified by van Zanden, Buringh, and Bosker (2012). We will also construct a coding of constitutionalism directly based on its definition.

With these measures of land rights and constitutionalism, we investigate empirically whether differences in land rights indeed explain the variations in political development. Endogeneity problems are addressed.

Does Social Trust Increase Support for Free Trade?
Evidence from a Field Survey Experiment in Vietnam
Quynh Nguyen
Swiss Federal Institute of Technology (ETH Zurich)

In previous research on social trust, aggregate measures of trust have been found to be positively associated with important indicators of economic growth, including high levels of cross-border trade. Investigating this apparent relation within the framework of public opinion research, this study seeks to better understand the relationship between social trust and economic attitudes at the micro level of the individual. In particular, this study aims to test how differences in individuals’ level of support for trade liberalization can be related to individual levels of social trust. As trade liberalization processes
set in, economic exchanges increasingly take place between strangers. Inevitably, in such settings the issue of trust or the lack thereof gains great significance.

Drawing on evidence generated by earlier work, it is argued that social trust diminishes uncertainty and risk perceptions often associated with exposure to economic globalization, thus allowing individuals to feel more at ease with engaging in economic transactions with entities from foreign countries. Accordingly, the micro-level implication of the relation between social trust and trade openness is that the less trusting individuals are, the less likely they are to support further economic openness.  Remarkably, the empirical testing of this relationship has thus far been limited to the exploration of correlational associations between some self-reported attitudes of trust or past trusting behavior and respondents’ stated trade preferences. Through a modified trust game, this study seeks to provide a more direct assessment of how an individual’s trusting behavior relates to her level of support for trade liberalization. To this end, we conduct a field survey experiment in Vietnam – a country in the midst of the process of opening up its economy.

Institutional Capital and Geography: Does Aggregation Matter?

Research Institute of Industrial Economics
& Jönköping International Business School

Although social scientists have been studying the role of institutions for more than a century, the importance of institutions for local economic development has been a topic of investigation only during the last few decades. The increasing consideration of geography in the institutional framework coincides with the rapid advancement of empirical applications in the urban and regional economics literature. Although the questions addressed in both lines of literature in relation to local economic development overlaps, we still see very little exploitation of the institutional framework in the urban and regional economics literature. Likewise geography remains peripheral to the institutional analysis.

Taking geographical aggregation into account should be crucial to understand the importance of institutions at the local level, since both formal and informal institutions vary drastically across space and across varying geographical units (regions, cities, neighborhoods). If local institutions are constructed socially and often represent the cumulative mindset and characteristics of the individuals populating a certain location, we should observe notable variations in their economic outcome across space as well. Today we can quantify institutional capital (e.g. intellectual capital, political capital, social capital) at very fine geographical resolutions, which allows us to draw an inference on its relationship to economic development at such localities. As Tobler (1970) suggests, gravity tells us that “everything is related to everything else, but near things are more related than distant things”.

Thus, the general idea of this paper is to examine various aggregations of geography for capturing the relationship between local institutional capital and local economic development, and see how such relationship attenuates with increasing distance. The analysis will employ geo-coded registry data from Sweden for the years 1990-2010, where every individual, their workplace, and their residence can be pinpointed down to highly disaggregated neighborhoods. The paper aims to enhance the understanding of the spatial dimension in the institutional framework, which then may contribute to a healthier debate on the customization of place-based policies.

The Nature of India’s Emerging Uber Economy
Prateek Pathak
O.P. JIndal Global University

Online market aggregators like Uber, AirBnB, IRentShare etc. have disrupted existing business models and contributed to the rise of national sharing economy. Although these firms don’t directly own the assets and services traded, they have shown the promise to facilitate better voluntary co-ordination within market participants and monetize under-utilized excess capacity via mobile internet applications. Considering that smartphone penetration in India is increasing, start-ups with similar business models like Ola Cabs have already started burgeoning in India.

However, the recent Delhi Uber rape case led to a ban on online market aggregators by Delhi Government’s Department of Transportation due to their inability to ensure the safety of their woman customers. Accordingly, Uber was required to adhere to responsible regulatory requirements to ensure safety of its customers e.g. introduction of SOS message button option. Thus, the objective of this paper is to explore whether Uber’s subsequent compliance to responsible regulatory requirements has been efficient for its drivers or not.

Considering that most of the services traded in India’s Uber Economy are recurring transactions with non-specific investments, a market governance structure with classical contracting system which ignores the identity of individuals would be more efficient for execution of transaction as per Williamson. However, I argue that a market governance structure with a contract system which is responsive to needs of groups of individuals associated with certain identity [i.e. ‘responsible’ regulations] will be more efficient in the Indian context.

Along with qualitative case studies, the paper observers that earnings per hour of Uber drivers are increasing compared to drivers who are not associated with online market aggregators.

Indeed, this paper will contribute to our understanding of how compliance with ‘responsible’ regulations by online market aggregators in India’s Uber Economy is actually more efficient for them and it is in their interests to selectively give up their ideological resistance to any form of regulation. It will also offer informed perspectives to Indian policymakers working in domain of internet-related policies within different sectors of the economy to design appropriate regulations to maximize their social value.

Alleviating Anti-Certainty:
Remedying Corporate Opportunism at Potential Victims’ Expense
Tel Aviv University

While corporations create countless risks to which they expose the public at large, victims of corporate-caused torts commonly lack the status or power to protect their interests prior to injuries manifestation, by that time, however, it will often prove too late to gain recovery. Instead, with relative impunity, firms can behave opportunistically at the expense of many of their future and contingent tort claimants; the firm retaining its position as primary beneficiary of profits while shifting losses onto its potential claimants. From well-endowed firms siphoning earnings beyond potential claimants’ reach via dividend distribution to financially strapped ones engaging in excessively-risky strategies, firms benefit from a period of time in which it may lawfully engage in strategic behavior at the expense of its potential-harm victims unimpeded.

Out of fear of granting too-many rights, too soon, and to the wrong people, the law commonly avoids granting “potential” creditors the rights and protections that creditors ordinarily receive. Similarly, due to high-levels of complexity and uncertainty the law generally shies away from granting potential creditors with probability-based rights and protections. Instead, potential victims are many times not afforded whatsoever with legal protections prior to manifestation of injury. However, if and when a potential injury does manifest into an actual injury, it will often prove too little too late as little-to-no funds will remain for recovery. How though, can rights and protections be properly allocated when an injury is uncertain to manifest, the scope of the potential loss remains unknown, the victim’s identity is unsure, and the time when injuries will manifest is unclear?

Undoubtedly, a fundamental agency problem exists. No constituency or mechanism effectively protects potential-creditor interests and staves-off intentional risk-shifting and harm-externalization at their expense. Yet, while classic agency-theory provides a functional outlook, applying institutional analysis enables a significantly more robust and nuanced method for understanding why things are the way they are, how they got that way, and how they might be improved. For example, providing greater clarity in discerning the formal and informal ‘rules of the game’, which players are involved, and why each acts in the manner they currently do.

Trauma of the Red:
The Long-Term Impact of China’s Cultural Revolution on Trust
Lingwei WU
Hong Kong University of Science and Technology

How could political institutions affect individual psychological wellbeing? As a product of the China communist institution and political system, the Cultural Revolution (from 1966 to 1976) is one of the most destructive movements in many aspects in the history of the PRC. During the CR, people were incentivized to censure and snitch on others whom they believe are not revolutionary to signal their loyalty to Chairman Mao. During the CR, many people betrayed their family and friends to show their loyalty to the Party and Mao.

In this work, I explored the long-term effect of exposure to China’s Cultural Revolution (abbreviation as CR in the following) on individual trusting outcomes. Three sources of variations are employed to identify the causal effect of the CR: (1) individual’s family Chengfen during the CR; (2) cohort exposure to the CR; and (3) regional variations in the intensity of the CR. My first measure of the CR intensity comes from Walder and Su (2003), which is the average number of deaths per county due to conflicts of the CR in a province, and my second measure is constructed using the geographic and cohort distribution of given names of Chinese people, since many of them were named as Wenge (which is the abbreviation of the CR in Chinese) during the CR.

My major findings are that individuals born in a Black family with cohort exposure to the CR and in a province with higher intensity of the CR are less trusting in general (trust towards the U.S. citizens, strangers, leaders and doctors). However, those individuals trust their parents more. I conjecture this pattern reflecting children’s guilt towards parents, since it is more likely for children to censure their parents to signal their revolutionariness to Chairman Mao during the CR (rather than the other way around: parents betraying children). Several robustness checks were conducted with respect to the alternative measures of the CR.

The Low Transaction Costs of Specific Performance
and the Benefits of Ex-Post Negotiations
Tel Aviv University

This paper challenges the case for “gain-seeking” Efficient Breaches of contracts. The paper shows that the Expectation Damages remedy is highly problematic and creates substantial transaction costs, overlooked by previous literature.

The Expectation Damages remedy enables a Promisee to breach a contract subject to a monetary payment of the Promisee’s expected damages. It enables the Promisor to breach the contract at will and transact with a third party. Thus, the Promisor alone will collect all of the gains from the breach (the “EB gains”). The Promisee knows this in advance, so she will demand to get her share of the EB gains ex-ante, by bargaining over the initial contract price. Under the Expectation Damages remedy, the parties must negotiate the Efficient Breach issue ex-ante, every time they make a contract and before any breach have yet happened.

The Specific Performance remedy on the other hand, grants the Promisee with a legal right to prevent the Promisor’s breaches. If an opportunity to breach materializes, then the Promisor will need to negotiate with the Promisee, which will then demand to get her share of the EB gains. Specific Performance enables the parties to negotiate the Efficient Breach issue ex-post, after a specific breach has actually materialized, thus creating fewer negotiations with lower costs.

In the paper, I compare and evaluate nine different elements of transaction costs: (1) Negotiation Costs; (2) Disagreement Costs; (3) Complexity Costs; (4) Uncertainty Costs; (5) Damages Negotiations; (6) Litigation Costs; (7) Risk Sharing; (8) Incentive to Find a Second Buyer; and (9) Coordination Costs. The paper demonstrates through a formal modeling that all these elements of transactions costs are greater under Expectation Damages than under Specific Performance.

Making Local Governance Work Better:
Evidence from a Natural Experiment with Decentralization
in Honduras
University of Colorado Boulder

Does decentralization improve local health services? Governments have decentralized their health systems in response to the fact that poor, rural citizens in developing countries have access to fewer health services and experience worse outcomes than their richer, urban counterparts, but there is little rigorous evidence on whether reformed systems produce healthier citizens. In this paper I investigate the effects of decentralization on local health services using a difference-in-differences research design and original quantitative and qualitative data from Honduras. My analysis shows that decentralization increases production-based health services that are regional priorities, namely preventive care for women, and that improved accountability and greater resilience to shocks are important causal mechanisms. Notably, heterogeneity in effects across different health services highlights how the Regional Health Authority uses decentralization as a new policy lever which insulates it from the negative political consequences of directly pressuring health workers and mayors to improve performance. These results are robust to multiple specifications, compositional differences, and weighted estimation, and they pass a wide range of falsification tests.

Pricing-to-Market on Quality, Exchange Rate, and Firm Productivity
Miaojie Yu, Rui ZHANG
Peking University

How does an exporter respond to exchange rate fluctuations? In the presence of market segmentation and market power, an exporter will respond by adjusting its export price. This behavior is referred as “Pricing-to-Market” (PTM henceforth). However, previous studies on PTM mostly focus on firm’s adjustment in price but neglect adjustment in product quality. Empirically, previous studies use unit value of a product, part of which in fact already reflects quality, to proxy price. So the mixture of quality and price in the unit value measure masks firm’s actual decision in tackling exchange rate fluctuation. Thus to better understand firm’s PTM behavior, we need to disentangle quality from unit value.

Our first attempt is to directly measure firm-level product quality, and to investigate how firm reacts to exchange rate fluctuations by adjusting quality and quality-adjusted price. We implement the method of Feenstra and Romalis (2014) to estimate quality. The rationale behind their method is that given the same unit value, quality (quality-adjusted price) of product produced by more productive firm is higher (lower). With estimated quality, firm’s decision is further decomposed to decisions regarding quality and price, and PTM behavior is described more precisely in this manner.

Our second attempt is to explore the role of firm productivity in inducing different PTM behaviors, both in terms of quality and price. Intuitively, more productive firm should be more flexible in coping with exchange rate fluctuations, leading to heterogeneous PTM behaviors based on productivity level. This is in line with trade literature highlighting differences in firm performance originated from firm heterogeneity in productivity.

Using Chinese firm-level and product-level data, we aim at identifying how firms respond to exchange rate fluctuations by varying prices and product qualities, and how these behaviors differ for firms with various productivities. This paper will help to enhance our understanding in exporter’s optimal strategy on price and quality against exchange rate uncertainty. More importantly, these optimal strategies are likely to be condition on firm’s own capability.

Modeling Internal and External Stakeholders’ Pressure
in Multinational Corporations’ Adoption
of Green Supply Chain Management
Shuang ZHAO
Indiana University Bloomington

Previous empirical research has provided a broad survey of what green supply chain management (GSCM) programs have been pursued around the world. Such studies, however, have not used consistent and quantifiable measurements of GSCM, which makes causal inference of factors that lead to adopting GSCM practices difficult. In this analysis, I present two novel institutional measurements for GSCM: (1) whether a multinational corporation reveals their suppliers’ list for public scrutiny and (2) whether a multinational corporation adopts a suppliers’ code of conduct, and assesses institutional pressures that drive firms’ adoption of these practices. Employing these measures, this analysis tests the role of two groups of institutional actors in pressuring multinationals to adopt higher levels of GSCM: external stakeholders, such as government and environmental NGOs, and internal stakeholders such as company stockholders.

I report results of a set of empirical models with time series data on a sample of 565 of the largest electronics multinational companies across the US to analyze the role these intuitional pressures play in a firm’s probability of adopting GSCM practices. I show that NGOs will be more efficient in exerting their pressure if they target companies that have already been pressured by their internal stockholders. This analysis contributes to political science, public policy and the business literature by introducing novel and quantifiable measurements of GSCM that may be extended to other sectors and markets in which the voluntary approach of addressing environmental externalities is considered.

Land, Hukou and Urbanization in China:
A Comparative Study of Land Reform between Chongqing and Chengdu
The University of Hong Kong

Is China going to eliminate the dual society? The hukou system divides Chinese into urban and rural populations who have different property rights over their land and other economic activities. Collective rural land rights cause a huge rent gap compared with privatized land. How to capture it to finance a more integrated rural-urban society is the incentive of the land reform. Hukou reform is trying to decentralize big cities and advocating small cities and towns. However, the efficiency of dense city has been well documented. Which one should be applied? According to the Coase theorem: if property rights are clear and transaction costs are low, market will allocate resources efficiently. The land reform includes the clarified and enhanced land use rights and the establishment of a rural-urban land exchange market.

Two cities in China are selected by the central government to experiment with this land reform. Chongqing needs peasants to migrate to downtown permanently, while Chengdu aims to increase the living standards of the rural area. Therefore the institutional environments of their land markets are very different. The land prices and price fluctuations are quite different too. This comparative study measures the magnitude of land rent gap, land productivity, land supply, personal economic situation, and social welfare associated with migration decision. It shows the impact of land reform on land productivity, hukou reform and migration incentives. Data will collected through interviews and the land exchange transaction records. The findings would shed some light on the land, hukou and other urbanization policies in China. 

|2001 Berkeley |2001 Rio |2002 Cambridge |2003 Budapest |2003 São Paulo|
|2004 Tucson |2005 Barcelona |2006 Boulder |2007 Reykjavik |2008 Singapore|
|2008 Philippines |2008 Beijing |2009 Bratislava |2009 Xiamen |2010 Moscow|
|2010 Shanghai |2011 Chicago |2012 Beijing |2012 Santiago |2013 Xiamen|
|2014 Manila |2015 Hong Kong |2015 Tel Aviv |2016 Tallinn|

  All past events


©2000-2017 The Ronald Coase Institute           Site by Alexandra Benham            Contact Us            Make A Gift            Site Map            Search