Ronald Coase Institute



2016 Tallinn Workshop: Abstracts



WORKSHOP ON INSTITUTIONAL ANALYSIS
MAY 15-21, 2016
TALLINN, ESTONIA

ABSTRACTS

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|Hasanbasri
|Ilic|Jiang|Kaplan|Kruglova|Li|Liu|Ma|
|Merouani|Nahmias|Ostapenko|Salcedo|Salsman|Sassi|
|Shao|Sharony|Shen|Song|Vorobyev|


Cross-Border Marriages and Female Empowerment
So Yoon AHN
Columbia University

Globalization has integrated various dimensions of the society, including labor and financial markets over the past decades. Another crucial dimension of globalization is the integration of the marriage market. Even though cross-border marriages have been rising consistently, we do not have comprehensive understanding on its impact, especially on sending communities. This paper studies possible consequences of marriage market integration, especially focusing on female empowerment in the bride-sending side of the market. I take advantage of a unique institutional change in the Vietnamese marriage market. Economic interaction with Taiwan initiated marriage flows between Vietnamese women and Taiwanese men in the early 1990s and expanded rapidly. There are two specific features of this marriage flow: (1) women became scarcer, and (2) women’s value increased significantly. Taiwanese grooms pay a bride-price that is approximately twice the GDP per capita in Vietnam, and migrant women send remittances exceeding GDP per capita every year.

New marriage market conditions changed the economic behavior of people who remain in Vietnam at several margins. First, I find that consumption patterns change to the direction to transfer more power to women in the affected areas after the large outmigration of women. More specifically, women-exclusive goods consumption increased and men-exclusive goods consumption decreased in the affected areas. One percentage point increase in the outflow of women among the female cohort of marriageable ages is on average associated with 106KVND more share of women in a given year.  This is approximately equivalent to the price of 30kg (i.e. 60lbs) of rice. Second, I find that husbands do more domestic work compared to their first year of marriage in the affected areas. Finally, the sex ratio at birth was much less male-biased in the affected areas compared to the unaffected areas after the change. This suggests that marriage market integration potentially can empower women in the developing countries, given that cross-border marriages usually involve women in the developing countries.



Measuring Public Perceptions of Institutional Legitimacy:
An Experimental Investigation of Survey-Based Instruments
Brilé ANDERSON
ETH Zurich

Existing survey instruments measuring public perceptions of an institution's legitimacy are insufficient. First, these instruments frequently intertwine theories of legitimation (e.g. democratization) into the questions; thereby assuming these theories are true. Second, others equate obedience, a potential byproduct of legitimacy, as the measure itself. Lastly, existing measures have failed to empirically establish construct validity. I propose an alternative five-item survey measure to address these theoretical shortcomings, and empirically test its validity against a behavioral measure of legitimacy from Dickson et al. (2015). In their experiment, participants play a public goods game where an "authority" can target one "citizen" for punishment after citizens contribute. Citizens who are not targeted can choose to help or hinder the authority. This assistance is a behavioral measure of the authority's legitimacy. I will replicate this study and compare citizens’ net assistance in the public goods game to their scores on the new and old survey-based measures of legitimacy.



Congress Composition and Electoral Advantage
Juan Carlos ANGULO
Universidad del Rosario

How does a political reform affects the Senators’ legislative behavior? I use a Colombian unique scenario and a regression discontinuity design to check the differences in bills presented, discipline, and the attendance to voting sessions of each Senator as proxy of their legislative behavior. I find that there is a difference in the legislative behavior during the 4-year term of the Senators benefiting with respect to the ones that would have been elected anyway. I examine if the behavioral difference gives them an electoral advantage.  However, I find that there is no difference in the probability of running in the subsequent election, of being elected, or of being investigated for links with paramilitary groups. I also find no difference in the share of votes in the subsequent election, the share of votes within their party list, and the concentration of their votes. Therefore, the results suggest that political reforms can change the composition of governing or legislative bodies in terms of performance, but it does not necessarily translate into an electoral advantage.



Fragmentation of an Empire: The Political Economy of Spain
and Its Colonies in the Late Bourbon Period
Fernando ARTEAGA GONZALEZ
George Mason University

Even though no one denies the possibility of “fortune reversals”, most of the literature still has a very particular “whiggish” essence: From Rostow to North, the general emphasis is given to the transition from primitive to more mature stages of institutional governance.  The particularity of my research project is that it focuses on how State Capacity can crumble, and Institutions can regress to less robust settings.

How and why did the Spanish Empire, which had been cohesive for hundreds of years, simply fragment in less than a decade? I stress the importance of the fiscal sociology of the Spanish Empire, one in which certain political enterprises (Miners, Merchants, Crown) played key roles in determining its fate.  Although I generalize my findings to the whole of the Spanish influence area, most of my study focuses on the case of New Spain - as it was the more important colony of the Empire in the period being studied (late 18th century).   The argument I present is very simple and follows a common insight of Neo Institutional Economics: a political equilibrium is stable only while the necessary conditions to sustain it, prevail, and so it can be vulnerable to exogenous shocks that may change the conditions and incentives of the involved actors. I argue that this was the case in the Spanish Empire. 

I maintain that the Empire had an implicit political arrangement; one in which the Crown maximized tax revenue through its power in managing the transatlantic trade. It did so by co-opting a small set of local American elites (In Lima and Mexico City), which gained rents from their privileged trade position.  This was a stable setting while Spain had sea supremacy.  The advent of the British Navy in the late 18th century disrupted everything. Thereafter, the Crown attempted to decentralize its oceanic trade through new routes, and tried to co-opt a larger set of regional elites within the Empire. This tactic backfired: it only gave major power to new local elites and created incentives for political fragmentation.  



Is Gangnam Style That Good?
Peer Effects and the Optimal Duration of Copyrights
George BEKNAZAR-YUZBASHEV
National Research University Higher School of Economics, Moscow

Existing economic models of copyrights in music fail to fully take into account peer effects. In this paper I attempt to bring behavioral law and economics into the debate on optimal copyright length and show that willingness to pay for some types of works does not fully correlate with experienced utility. This is especially true for copyrights with a significant subjective element like music. If that is the case, then inefficiencies arise due to rent-seeking behavior on the producer’s side.

Traditionally the focus of copyright scholars has been on creating the right incentives for the producers. In the face of high fixed costs of creating a work and almost zero marginal costs of copying it the main purpose of copyright law is seen as providing a monopoly to the author to allow them to recoup the investment. Ex ante, devoid of such protection, many potential authors would simply not engage in the creative process leading to underproduction of works. One of the assumptions of conventional analysis is that willingness-to-pay gives a good approximation for the quality of the work (that is, how it affects welfare).

Recent developments in behavioral law and economics prompt a question whether using willingness-to-pay is entirely adequate for copyrights in works with a significant subjective element. Salganik, Dodds & Watts (2006) have shown that in an artificial cultural market for music success is only partly determined by quality: a lot is left to chance and social influence. If that is the case, then market forces are less important than previously thought (consider a hypothetical case where quality is not perceived by consumers at all and everything is determined by social influence. Then the quality of songs is completely irrelevant to the enjoyment from listening, and competition creates zero additional value). Even in the real case existence of some rents leads to rent-seeking behavior, which has to be taken into account when calculating the optimal length of copyrights.

Empirical part of the paper will be based either on a network analysis of contagion of popular songs through social media, or a Salganik-type experiment.



Explaining the Low Participation Rate
of Green Building Incentive Scheme in Hong Kong
from the Perspective of Transaction Cost Analysis
Ke FAN
Hong Kong Polytechnic University

As the building sector is key to achieving greenhouse gas emission reduction, Hong Kong implemented a green building incentive scheme, Gross Floor Area (GFA) Concession, to address climate change five years ago. This scheme grants developers a maximum of 10% GFA in exchange for providing green building features. It should be attractive to developers as Hong Kong has high land price and the additional GFA means extra profits for developers. However, the actual participation rate of this scheme is less than 30% of the developments in the past five years. To comprehensively evaluate the incentive scheme, transaction costs should be taken into account based on the previous research. This study aims to explain the underlying reasons resulting in low participation rate from the perspective of transaction costs.

It is built on the literatures on transaction costs (TC) of implementing environmental policy. A list of TC items applicable to Hong Kong situation was identified and validated by literature review and interview, including information searching cost, research/learning cost, negotiation/communication cost, approval cost, monitoring cost and verification cost. To reduce these costs, it is necessary to understand their causes.

Transaction costs are influenced by three transaction dimensions, asset specificity, frequency, and uncertainty (Williamson, 1985). Therefore, this paper starts with the three attributes to analyze the GFA concession scheme and identify the causes of TCs. The results will reveal the lists of contributing elements to transaction costs. The findings will explain how the three attributes regarding to the GFA concession scheme induces TCs in different forms and prevent stakeholders participating in the scheme. It could also indicate the fluctuating transaction costs that could be reduced by improving the policy. The results could be generalized to evaluate other environmental policies and make comparative study to identify the most efficient one. Moreover, this study extends transaction cost analysis theorizing about the impacts of transaction costs on policy efficiency, with real-life case study.



Commodity Cycles and Economic Development:
A Study of the Brazilian Coffee Cycle (1830-1930)
and Local Economic and Institutional Disparities
Anna B. FARIA
George Mason University

How does an agricultural commodity affect economic development?    This paper examines the role of the coffee economy of the nineteenth century Brazilian Southeast in creating growth-promoting institutions and conditions.  The coffee economy influenced development patterns for the Brazilian Southeast because with it came large investments in infrastructure, political and economic competition and large gains in the stock of human capital due to European immigration. Coffee areas today perform better institutionally and economically than areas that went through earlier colonization processes, such as the sugar cane and gold cycles.  The coffee cycle affected current income per capita levels, public goods provision, and fiscal governance at the state-level.



When Social Norms Restrict Women’s Role in the Labor Market:
Consumption Smoothing Ability and Inequality
Ardina HASANBASRI
Washington University in St. Louis


In some societies, religious values and social norms within the family restrict women’s role to household chores and childcare; work outside the house is frowned upon. It is unclear how preferences for traditional gender roles affect the family’s wellbeing, especially in the face of a negative economic shock. Using detailed household micro data from Indonesia, I analyze whether families who do not allow wives to work when the 1997 financial crisis hit suffer more than those whose wives are able to work.  If household’s purchasing power decreases due to the shock, having a woman earning additional income mitigates any negative income effects. Female labor supply as a form of insurance in developing countries has been discussed in the economics literature. This paper specifically emphasizes how social norms include observed household differences in female labor participation.

I map the causal relationship between social norms and households inability to insure through female labor supply by using the Indonesian Family Life Survey (IFLS). This longitudinal survey consists of four waves: 1993, 1997, 2000, and 2007. Households finished their interviews for the 1997 survey right before the Asian financial crisis hit. The 2000 survey contains information on the different ways consumption, income, and labor allocation decision changed after the crisis. Furthermore, IFLS includes an adat (traditions) module. A village elder or an expert on village customs was asked about the traditional norms within the village and the current norms.  One question specifically asks whether women are allowed to work outside the house. Out of 227 villages, 30% answered “yes”, 59% answered “if necessary”, and 11% answered “no”.

The richness of the data and its longitudinal aspect helps me characterize households who may benefit from additional women’s income during the crisis but decided not to increase female labor supply due to restrictive norms. I then measure from the data differences in the consumption change (2000-1997) between this group and a less restrictive group that allows women to work. The 2007 wave is used to track whether these differences persist in the long run.



Patent Enforcement vs. Economies of Scale: The Case of Tesla Motors
Nikola ILIC
University of Belgrade

The aim of this research is to provide an economic explanation for unilateral grant of rights relating to patented inventions (often being referred to as patent pledge) in the case of Tesla Motors Inc.

The general assumption is that the cause of the patent pledge lays in overcoming the biggest constraint in increasing demand for Tesla Motors products, that is expanding of the electrical charging network    (as it is present in a limited number of locations and its density is low). In that sense, the author's first hypothesis is that patent pledge in case of Tesla Motors creates incentives for new competitors to enter the electric vehicle market. The second hypothesis is that greater competition on the electric vehicle market has a positive impact on the development of the electrical charging network.

Consequently, fully developed charging network will increase demand for Tesla Motors products and further enable this company to materialize economies of scale and network effects, decrease unit costs and be more competitive, which finally results in an acquisition of substantial economic rent.

In order to prove the hypotheses, the author will primarily explain a patent pledge as a factor that eliminates a legal barrier to entry on the market (first hypothesis). Subsequently, the author will demonstrate that those electric vehicle producers have a common interest in expanding the charging network (second hypothesis). As the main point, the author will finally examine whether the undeveloped charging network is a substantial obstacle for enlarged demand of Tesla Motors products. That will be done by econometric analysis of demand by using charging network density as the explanatory variable, together with defined control variables: income per capita / level and income distribution.

Additionally, the economies of scale will be demonstrated by the determination of the size of the fixed costs of Tesla Motors (especially those of R&D– over 464.7 million USD only during 2014) in relation to the variable costs. Network effects will be verified by identification of products complementary to the electric vehicles.
In conclusion, the author will explain the real economic reasons that stand behind the officially declared explanations of the patent pledge made by Tesla Motors.



The Transformation of Policy Preferences and Its Social Bases in China
Siyun JIANG
Hong Kong University of Science and Technology

My current research would build on recent efforts to construct a more comprehensive framework for studying the transition of policy preferences under the background of increasing economic inequality in contemporary China.

First, this research will connect several streams of literature on public opinion toward equality and emerging ideological spectrum. The research would like to see whether the individuals’ socioeconomic characteristics would influence the subjective importance of equality, which indicates their insistence on socialist ideology. If China has an emerging political belief systems in which “authoritarian-nonmarket” and “liberal-market” orientations is forming, are there two separate groups with socio-economic status and interests contradicting with each other? Second, this research would like to see perceptions of equality from both political and economic perspectives. If the perception of inequality does not relate to objective characteristics and the overall trend of increasing inequality in China according to some scholars, would the political preference also have little correlation with the objective characteristics and the overall trend of enlarging inequality?

Using Chinese General Social Survey, this research will detect the components of the perception of economic equalitarianism and political egalitarianism. Then it would explore who are the supporters to these two kinds of equality empirically with a focus on their income, education and family backgrounds. This research would like to argue the combination of different degree of support to economic equality and political egalitarianism could explain people’s positions in the emerging ideological spectrum.

Moreover, this research would like to see, under the background of increasing economic inequality, whether the change of social groups’ preferences on economic and political norms is consistent. Chinese General Social Survey used the same questionnaire in 2003 and 2013, which gave us an opportunity to compare the results and see whether the policy preferences changed along with increasing economic inequality in this period. Along with the social changes in this period, we can find out how the public belief system changed and whether there was an overall trend of ideological polarization.



Domestic Power Relations and Trade Integration:
How the Domestic Political Structure Affects
the Sectoral Export Composition
Lennart KAPLAN
University
of Göttingen, University of Heidelberg

How does the domestic power structure of a country influence the participation in a globalized world economy?  International trade is a key characteristic of an increasingly interconnected world economy. Recent research indicates that step-wise trade integration of low and lower middle income countries can act as a driver of sustained growth.  However, not all groups in a country might benefit equally from trade integration and political stakes might drive a sub-optimal composition of the export basket.

This paper addresses the question how the domestic power structure affects the export composition of a country exemplarily for agricultural commodities. By overlaying innovative geo-referenced maps on ethnic power relations and agricultural suitability, a measure of access to cropland of politically included groups is constructed. In this way we can examine whether trade liberalization fosters disproportionally exports from powerful actors vis-à-vis exports from marginalized groups. This hypothesis is assessed based on a state of the art gravity model, which is the workhorse model in the empirical trade literature.



Institutional Roots of State Failure
Ekaterina KRUGLOVA
Lomonosov Moscow State University

What do we really mean when talking about the state failure? This research addresses the concept of state failure, based on three different points of view on this issue.

In this paper different types of state failure are identified. Since a state is an organization, it has its own shareholders, stakeholders, and third parties. Therefore, state failure might be examined in three different contexts. The first defines failure from the point of view of the organization itself and its shareholders, i.e. the elites. The second treats failure from the viewpoint of a state’s stakeholders, represented by the population. The third approach considers failure as perceived by third parties, i.e. experts and international organizations. A state may be deemed successful according to one view and failed according to another. Hence the failure can be complete (where all of the views assert the failure), quasi (where the state is considered failed only by one or two of the measures), and alleged (failure identified only by experts). The result is that some states identified as failed by renowned indices are in fact only allegedly failed, while remaining legitimate in the eyes of their citizens.

The point of view of the countries’ population is the principal focus of this research. Social contract is understood as a basis for the state’s sustainability in the eyes of its population. To reveal the list of the failed states from this perspective the “exit and voice” concept is used. It is based on the idea that in states failing to fulfill the social contract, unsatisfied citizens are trying to exit it by migration, by moving its activities to the shadow economy and/or openly express their discontent. Using the exit-voice approach we create an index of state failure for years 1999-2005.

Pooled OLS and Probit estimates are used to test the hypotheses of the institutional roots of state failure from the citizens’ perspective. The results are the following: limited access institutions and diverse population increase the probability of state failure. Probit-model shows the significance of resource dependency as a factor of failure, and OLS highlights that state experience helps to avoid it.



Leaders’ Education and Economic Liberalization
Jingheng LI, Tianyang Xi, Yang Yao
Peking University


The standard models in political economy attribute determinants of economic policies to electoral competition, special interests politics, and institutions. Political leaders, however, also play a vital role in initiating and forming policies. Moreover leaders’ ideas and visions shape the discourse and platform for economic policies.

In this paper, we empirically examine how a country’s overall tendency of economic liberalization was affected by leaders’ educational attainments, which we interpret as a main source of their ideas and visions. Relying on a data set of economic reforms in over 140 countries for the period from 1960 to 2005 (Giuliano, Mishra, and Spilimbergo, 2013) and originally collected data on national leaders’ education, we find a strong effect of leaders’ educational attainment on economic liberalization. Having a college degree (versus not) translates into an annual increase in the level of economic liberalization by 38 percentage points. We also find that the effect of education is orthogonal to the effect of democracy: highly educated leaders promote economic liberalization in autocracies as well as in democracies. The effect of highly educated leaders is not driven by the pre-existing trends of economic reform or growth, nor is it due to politicians’ pandering to public opinion for economic liberalization.

Our findings survive a set of robust checks which consider alternative measurements for education, leaders’ career path, and sample heterogeneity. The results stand when we use the random transition of political leadership as exogenous identifier for the causal effect of leaders’ education. These findings provide a complementary mechanism for understanding the relationship between political leadership and economic policies and performance established in previous literature.



Official Age, Promotion Incentives, and Financial Manipulation
Jinyu LIU
Tsinghua University

This paper focuses on examining the effect of official retirement age on their administrative manipulation behaviors. Official age is closely related to the career prospects and promotion incentives of local officials, thus affecting their administrative strategies with respect to the regional GDP stimulus policies and City Commercial Banks loans. Motivated by the “yardstick competition”, officials with promotion potentials may tend to indiscriminately pursue administrative achievements. However, under the strict tenure system and retirement age policies, as the age of officials approaching retirement age line, this promotion incentive greatly declines. We propose that other factors of officials exert smooth influence on officials’ governing behaviors, while the certain boundary age lines will give rise to an abrupt change, which is a reflection of the promotion incentive effect. Therefore we could get rid of the endogeneity problem with RDD methodologies by examining the significance of jumps in local economic performances, land-using policies, and City Commercial Bank loan behaviors around the boundary age.  More specifically, Government grasps controlling power of their loans. Their credit supply and risk taking behaviors reflect the governance characteristics and political purposes of officials, and furthermore, the manipulation behaviors will exert an influence on the local GDP growth rate.  With respect to the firm-level effects of official behaviors, we propose that retirement age pattern of local officials affects the privatization of local firms.

We use a dataset of 140 city leaders (party secretaries and governors) who serve 92 cities from 2004 to 2012, and 127 local commercial banks, including listed banks, to examine the officials’ age effects and mechanism. We find that as officials approaching retirement age line, there is a prompt drop in loans of commercial banks as a result of the sharp decline of promotion incentives. The results are robust when we use other measure of loans launched by local commercial bank. At the same time, the economic performance, such as GDP growth rate and fixed asset growth rate, experience a lagged slump as a result of the abrupt change in official promotion incentives.  Moreover, the decline in promotion incentive reduces the motivation of officials to promote the privatization process of local state-owned firms and boost their performance.  The age effects suggest the effects of retirement policy on the manipulation behavior of local officials.



Copyright Law Reform in Digital China:
A New Institutional Economics Perspective
Xiao MA
Zhongnan University of Law and Economics

The aim of this paper is to construct an efficient, well-balanced and predictable indirect copyright liability system in digital China, from the perspective of new institutional economics. In order to address the digital revolution that has challenged copyright protection, China has carried out a series of legislative attempt in recent years. The joint tort oriented, knowledge-centered liability attribution rules and a set of borrowed safe harbor provisions from the United States have set out the rudiments of the indirect copyright liability regime. However, institutional obstacles – incomprehensive and incompatible rules, result in high transaction cost, which became major factors impeding the effective law enforcement and the efficient operation of the intermediary’s business.

This paper seeks to analyze the institutional implications of copyright liability rules in the digital era of China in the following steps. First, it takes look at history and economics of the copyright law, suggesting that principles of technology neutral, balance and efficiency are three fundamental principles underpinning the establishment of an indirect copyright liability system. Second, it conducts a comparative study of the laws in the United States and United Kingdom in order to extract the economic principles that help to build an effective liability attribution system. Third, to design good laws in China, this paper analyzes the relevant interests parties who are at stake, and how to transplant laws effectively into China. It finds that the US culpable-conduct based attribution rules and the UK multi-factors analysis interpretation rules might apply.

Through learning the Anglo-American experience in the perspective of institutional economics, this research recommend an efficient build-to-suit approach for a viable legal transplantation in China. This paper proposes an independent-tort theory oriented, culpable conduct based indirect liability system, with modified safe harbor provisions. For copyright holders, this is a solution to fight against piracy; for technology innovators, this system contributes to improve the capacity for innovation and economic independence; for the general public, this system lowers their cost to access to knowledge and information.



The Pension System in Algeria: The Religious Perspective
Walid MEROUANI
CREAD

Could Islamic pension funds be a solution to improve pension coverage in Algeria? More than 42% of the workers do not have any pension coverage and risk to be insolvent when they get old. In Algeria, the pension system is made by the public first pillar that covers only a small part (57%) of the workers. The private pension system does not exist at all and one reason for this is religion limitation. Islamic religion forbids taking and giving interest and then forbids pension funds that deposit their asset in a bank. Islam also forbids to invest in firms trading in unclean activity such wine and animals. Hence, workers, with religious beliefs, will be less likely to purchase pension from such funds (Moran, 2012).

This paper aims to know if the implementation of Islamic pension funds helps to improve pension coverage. We will analyze the empirical cases in developed and developing countries that have already implemented Islamic pension funds (USA, UK, Malaysia, Indonesia, Pakistan). We will also analyze the situation of pension coverage in other Muslims countries that have not implemented such funds (Tunisia, morocco). The comparison between the demand for pension, in these countries, before and after the implementation of Islamic pension funds allows saying if it is worth it for Algeria to adopt such pension scheme.

Keywords: pension, Islamic beliefs, labor market, Algeria



Mandatory Profit-Sharing Policies in Copyright Law
Yifat NAHMIAS
Bar-Ilan University


On July 31, 2013, the Israeli legislature passed the “Law for the Protection of Literature and Authors in Israel.” Designed to ensure authors are better compensated, the law states that an Israeli author shall receive at least eight percent of the book’s list retail price for the first 6,000 copies sold, and ten percent of any additional copies sold thereafter. In passing this law, the Israeli legislature sought to protect authors both by setting a minimum price on the initial sale of books and by establishing a compulsory profit-sharing arrangement.

Although profit-sharing arrangements are usually the result of voluntarily negotiations, a review of the copyright laws and other author-centric legislation in Israel, EU, and the United States uncovers a range of policies adopted in an attempt to coerce parties into sharing arrangements. These policies reflect a general mistrust of the outcome of free negotiations between authors and intermediaries (producers, publishers etcetera). Policymakers are not directly concerned with the rights-holder’s control over the copyright work, but rather with the remuneration of authors (or some other group) and therefore produce some questionable distributive implications. While the specific framework, legal tools used, the extent of their application and the scope of the policy may vary; the forced transfer of entitlement or part thereof to (or, back to) one of the parties, achieved via termination or the bestowal of a forced share, is the core of these policies.

It is difficult to determine in the abstract whether they are desirable, or, what their scope should be. However, the distributional consequences of these policies have not yet received the careful consideration they deserve. Given the serious concerns at stake, and the impact mandatory policies that mandate sharing could have on many creative industries, such as the music, movie, recording and book industries, to name a few; the objectives of this study are to identify and survey such mandatory profit-sharing policies then examine their distributional consequences.



Do the Negative Perceptions of Corrupted Regulations
Reduce Firms’ Innovation?
Nataliia OSTAPENKO
University of Tartu

If there is some heterogeneity in the impact of the corruption as an obstacle on the firms’ innovations? The aim of the paper is to find out if the negative perceptions of corrupted regulations (which is higher than the informal norm of the corruption in the society) have an effect on firms’ innovation.

A lot of studies found out the negative relations between corruption and innovations. At the same time informal norms haven’t been taken into account. If the level of corruption doesn’t coincide with citizens’ internal beliefs – they will not perceive the corruption as an obstacle to the current operations. This research takes into account three different possibilities of coherence between firms’ perception of corruption and informal norms: (1) corruption is not an obstacle to the entrepreneur and actual corruption is high, but widespread and a norm for entrepreneurs  (firms can make profits through the invisible protection from government officials); (2) corruption is not an obstacle for entrepreneur and actual corruption is low and (3) entrepreneurs perceive corruption as an obstacle to current operations but actual corruption is medium (or low). The last case represents the negative perceptions of corruption by entrepreneurs.

According to the purpose the methodology should be able to define this impact, therefore the analysis will be conducted at the enterprise level, because according to psychologists’ theories perceptions of one category of citizens could differ from the perceptions of other categories of the population. By conducting the regression analysis at the enterprise level as well as the multilevel analysis with using the Business Environment and Enterprise Performance Survey (BEEPS) database, it would be possible to define the effects of the perception of corruption as an obstacle on the innovativeness of entrepreneurs.

The preliminary findings are that perceptions of the corruption as more negative than the social norm in the society have an effect on the entrepreneurs’ innovativeness. Therefore the negative perceptions of the corruption and not the corruption per se have an effect on the entrepreneurial decisions to devote their activity into innovative.



Local Media: Expansion of Radio and Political Accountability
Evidence from Colombia
Dario José SALCEDO Monroy
Universidad del Rosario

Access to more information by a group of voters may represent more knowledge about the political system and incentivize people to make better choices. In this paper I argue that mass media have an impact over voters' knowledge, reflected on one of the main forms of political participation that citizens have in a democracy: voting and politicians' performance. The media outlet I take into account is radio, starting from its last stage of expansion in Colombia, since the mid 1990s. I use a measure of radio based on the counting of stations and the exogenous variation in signal transmission given by municipal topographic characteristics to study the effect of the growing number of radio stations on a set of political and policy results.

I find that in municipalities with more radio stations, turnout for the different types of elections, namely Presidential (1994-2010), Mayor (1994-2011), Senate (1994-2010) and House (1994-2010) elections, increases. I show that the vote share of the winning party in the Senate elections declines and the effective number of parties expands when there is greater exposure to radio, suggesting an increasing electoral competition. Finally, I find that the presence of local media also influences policy. A larger number of radio stations is associated with more resources to investment and a lower share of spending represented by operating expenditures.



ZIRPs, NIRPs and the Implicit Euthanasia of Public Bondholders
Richard M. SALSMAN
Duke University

This paper explores the role of central banks as enablers of fiscally–profligate states. Specifically, in recent years the world’s major central banks – beginning with the Bank of Japan in 2001 – have adopted zero-interest-rate policies (ZIRPs) and negative-interest-rate policies (NIRPs). Such policies, once considered unorthodox, are now commonplace and seem likely to persist for many more years to come. Initially these policies were defended as means of mitigating financial crises and recessions, but evidence now points to another motive: to minimize the financing costs associated with substantially larger levels of public debt and rates of public leverage. A related policy phenomenon – financial repression – induces and even compels financial institutions to hold (and thus demand) public debt, which further depresses bond yields (funding costs). A theoretical-moral justification – albeit flawed – exists for these policies: John Maynard Keynes, in his General, Theory of Employment, Interest and Money (1936), called for “the euthanasia of the rentier class,” effectively a zero rate of return, on the grounds not that incentives to invest would be enhanced but that bondholders (and other financial capitalists) were unproductive or parasitical.  Similar arguments have been made in recent years by the likes of Paul Krugman and Thomas Piketty. Although evidence suggests ZIRPs, NIRPS and financial repression engender secular economic stagnation (as best illustrated in Japan), policymakers tend to interpret the stagnation as sufficient reason to retain such policies. Economists and policy analysts who wonder (or hope to predict) whether and when central banks might again “normalize” policy rates must acknowledge not only the conventional moral suspicion of bondholders but the whys and ways central banks enable fiscally–profligate states.



Mapping the External and Internal Factors That Influence
the Organizational Performance Evaluation Practices
in Estonian
Cultural and Creative Industries Organizations
Marge SASSI
Estonian Business School

Why do some creative organizations succeed and some die out? The author of the current paper is convinced that regular organizational performance evaluation leads to higher competitiveness of cultural and creative industries organizations. Therefore systems theory and neo-institutional theory are used to frame the internal and external factors that explain the existing organizational performance practices in Estonian cultural and creative industries organizations.

Current article is based on a quantitative survey carried out in Estonia among 504 cultural and creative industries organizations representing all sub-sectors of the field. The hypothesis of the author is that more competitive organizations plan and analyse their organizational performance well, and this is the key success factor for their competitiveness. Therefore the environmental challenges, strategic management practices and performance measurement tools used by the cultural and creative industries organizations were mapped. The preliminary results show that only size and juridical form of the organizations acting in cultural and creative industries´ have significant effect to everyday evaluation practices. As a result of the study following potential critical success factors for the competitiveness of the cultural and creative industries´ organizations were detected: lack of financial resources, high competition in the field of action, innovation-oriented mind-set and orientation to international cooperation.

Cultural and creative industries have huge potential in terms of the contributions to GDP, creating jobs and improving well-being. Creative production is usually vulnerable and often fully intangible and therefore the organisations are not motivated to measure their organizational performance. Still in UK there exist many self-evaluation tools designed especially for arts organizations and they are widely used. As a result in UK the industry accounts for 6% of GDP while the EU´s average is 3.3%. The author believes that one of the reasons that explains this is the fact that the creative organizations in UK have the tools and know-how how to run their organizations strategically and measure their performance regularly. Therefore introducing the strategic planning and evaluation tools to cultural and creative industries organizations is essential to their existence.

Keywords:cultural and creative organizations, organizational performance evaluation, cultural and creative industries, strategic management, performance measurement.



Optimal Progressivity of Real Estate Taxation
with House Purchase Limitations
Xiaokuai SHAO
Tsinghua University

In order to prevent real estate bubbles, some Chinese local governments in big cities issued house purchase limitations, imposing harsh restrictions on purchasing houses. In many cases, only people with local registered permanent residence or with certain periods of tax payments were qualified to purchase (the additional) houses. Meanwhile, progressive real estate tax is to be issued as a complementary policy for purposes of raising tax revenue and redistribution. The current income and real estate tax policy with purchase limitations, however, are not consistent with the fact that the welfare of people is determined by net of tax income as well as real estate holdings simultaneously.

Therefore, the purpose of the paper is to derive an analytical framework of optimal progressive real estate taxation in terms of income tax rates with house purchase limitations, where real estate tax and income tax are jointly determined by elasticities of both income and house purchase with respect to tax retaining rate, distribution of income and eligibility, and redistributive objectives. It is a multidimensional screening problem given that taxpayers differ not only in productivity of labor earnings but also in qualifications on purchasing additional houses. One contribution of the paper is to emphasize the coordination of both income and real estate tax to balance the tradeoff between efficiency and equality and highlights the possibility of bunching where income tax exhibits a jump with tax rebate to subsidize progressive real estate tax, if purchase qualification is independent of productivity. Finally, four stylized welfare criteria (whether local tax authority is “xenophobic” and “conservative”) are clarified to understand how progressivity is shaped by different redistributive objectives.



Public Preferences for Redistribution and Actual Policy:
A Comparative Study
Chen SHARONY
Ben-Gurion University of the Negev

What are the factors affecting the gap between preference for income redistribution and policy? There is a mismatch between public preferences and policy in this field in some countries. That is, in some countries the public shows high demand for redistribution, but the government's social spending is low or vice versa. This study is a comparative study which uses panel data from 24 OECD countries, from different years (1990-2012). Public preferences were measured by value surveys and policy was measured by social expenditure and GINI index. The proposed sources for the gap between public preferences and policy are: social capital, ethnic heterogeneity, low level of perceived government effectiveness and high level of corruption.

Results showed that most countries have small gap between public preferences and policy. A few countries (like Greece, Israel, Portugal and Spain) showed negative gap, where social spending is lower than the public preference. Other countries (like Sweden, Denmark and Luxemburg) showed positive gap, where public spending is higher than the public preference. Government effectiveness and corruption were found as the main factors affecting the gap, but in some regressions social capital also had an effect on the gap.

The effect of government effectiveness on the gap may mean that the public does not demand redistribution, because they don't believe in the government's ability to perform. Another interesting finding is that a "positive gap" was found in countries considered to have high government effectiveness and low corruption. This could mean the people believe there is too much redistribution in the country.



Study of Factors Affecting the Stock Return Differences
Between A-shares and H-shares
Shihan SHEN and Liuyan Zhao
Peking University

We examine the stock returns of A-shares issued in mainland China and their H-share counterparts (stocks issued by the same company) in Hong Kong from January 2008 to December 2015. We first study the co-movements of individual stock returns and the market returns as well as the asymmetric information phenomenon between two markets. Based on our understanding of the mainland and HK markets, we develop two models from the Capital Asset Pricing Model to analyze the factors that affect the deviations between stock returns of A- and H-shares. We also explored the impact of financial reform policies on the returns of AH shares and find that the financial reforms do exert a significant influence on stock prices.

Empirical results show that H-share returns can be explained by both mainland and Hong Kong stock indices while the dynamic movement of A-share returns can hardly be explained by Hong Kong market. This indicates the fact that investors of HK stock markets are more informed. Granger-causality test indicates that the H-shares have advantage of information over A-shares. The two models derived from CAPM demonstrate that the difference in stock returns of A- and H-shares are caused by systematic risks, market stock indices, and market liquidity, but the risk-free rate has poor explanatory power in stock return differences.

We also find the policies aimed to facilitate the trades between mainland and HK markets help to reduce the difference in AH stock returns. First, the decrease of non-tradable shares to the total capital ratio will improve the A-share premium, and limits the impact of the stock price manipulation to the AH price difference. In addition, the implementation of QFII and QDII policies all have significant impact on reducing the AH-share premium, alleviating market inefficiency cause by asymmetric information and arbitrage limits.



Collaboration Risk: An Empirical Investigation
of the Form and Consequences of Collaboration Risk
in Emergency Management Networks

Minsun SONG
Florida State University

This research elaborates the concept of collaboration risk and measures collaboration risk in an emergency management context to investigate the relationship between perceived collaboration risks and network structure, and test a hypothesized non-linear form for this relationship. Building from an Institutional Collective Action (ICA) framework, three dimensions of collaborative risk - derived from coordination, division, and defection risk – are discussed and measured by a structured survey on 69 organizations in the Seoul Metropolitan Area, South Korea. The results of a fractional polynomial regression model show that the perceived level of collaboration risk has an inverse U-curve relationship with the number of collaborative ties that organizations forged. These findings imply that organizations perceived collaboration risk beyond a threshold point motivate termination of former ineffective arrangements while collaborating with other participants increases until reaching a specific level of collaboration risk.



Interim Information Disclosure in Elections
with Sequential Costly Participation
Dmitriy VOROBYEV
Ural Federal University

Electoral legislation varies across countries and within countries over time and across different types of elections with respect to its stance to making intermediate election results such as turnout and candidates' vote shares public knowledge during election days. Some countries do not allow media to announce the results of exit polls, but announce cumulative turnout every few hours.  In some elections not only cumulative turnout but also exit polls are regularly announced during the election day. In others, any information disclosure until the end of election day is illegal. In this paper, using a pivotal costly voting framework, I study how different information regimes affect voters' decisions to cast votes and what impact they have on the quality of public decisions as well as candidates’ and voters’ welfare.

In the model, there are two candidates with ex-ante unknown support and two sequentially acting groups of voters. Each voter has an individual specific voting cost drawn from a commonly known distribution, observes only his own cost, and decides whether to cast his vote or to abstain based on the probability of his vote being pivotal.  I compare equilibria under three distinct information regimes: full information disclosure (voters from the group acting later observe all the actions of the first group of voters), partial disclosure (later group voters observe only the turnout among the first group), and no information disclosure.

First, I show that voters benefit from more information and their expected welfare is maximized under full disclosure. Second, in terms of winning probability, full information disclosure benefits the candidate ex-ante preferred by the majority, no information disclosure benefits the minority candidate with low ex-ante support, while partial information disclosure benefits the minority candidate with relatively large support. Hence, a particular choice of information regime by an agenda-setting candidate may signal his support expectations. The key element of the mechanism underlying the established results is the fact that early voters participate strategically, anticipating the effect of their actions on the actions of voters who act later.


 
Abstracts
|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|




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