nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒01‒09
five papers chosen by
Eugene Beaulieu
University of Calgary

  1. Democracy, Credibility, and Clientelism By Philip Keefer; Razvan Vlaicu
  2. Partisan Politics and Aggregation Failure with Ignorant Voters By Faruk Gul; Wolfgang Pesendorfer
  3. Hobbes to Rousseau: Inequality, Institutions, and Development By Cervellati, Matteo; Fortunato, Piergiuseppe; Sunde, Uwe
  4. Building a Clean Machine: Anti-Corruption Coalitions and Sustainable Reform By Michael Johnston; Sahr J. Kpundeh
  5. Regulation and Macroeconomic Performance By Norman V. Loayza; Ana Maria Oviedo; Luis Serven

  1. By: Philip Keefer (World Bank); Razvan Vlaicu
    Abstract: Keefer and Vlaicu demonstrate that sharply different policy choices across democracies can be explained as a consequence of differences in the ability of political competitors to make credible pre-electoral commitments to voters. Politicians can overcome their credibility deficit in two ways. First, they can build reputations. This requires that they fulfill preconditions that in practice are costly—informing voters of their promises, tracking those promises, and ensuring that voters turn out on election day. Alternatively, they can rely on intermediaries—patrons—who are already able to make credible commitments to their clients. Endogenizing credibility in this way, the authors find that targeted transfers and corruption are higher and public good provision lower than in democracies in which political competitors can make credible pre-electoral promises. They also argue that in the absence of political credibility, political reliance on patrons enhances welfare in the short run, in contrast to the traditional view that clientelism in politics is a source of significant policy distortion. However, in the long run reliance on patrons may undermine the emergence of credible political parties. The model helps to explain several puzzles. For example, public investment and corruption are higher in young democracies than old; and democratizing reforms succeeded remarkably in Victorian England, in contrast to the more difficult experiences of many democratizing countries, such as the Dominican Republic. This paper—a product of the Growth and Investment Team, Development Research Group—is part of a larger effort in the group to investigate the political economy of development.
    Keywords: Governance; Macroecon & Growth; Public Sector Management
    Date: 2005–01–03
  2. By: Faruk Gul; Wolfgang Pesendorfer
    Date: 2005–01–04
  3. By: Cervellati, Matteo (Universitat Pompeu Fabra and University of Bologna); Fortunato, Piergiuseppe (University of Bologna); Sunde, Uwe (IZA Bonn)
    Abstract: We analyze the endogenous evolution of economic and political institutions and the interdependencies with the process of economic development. Favorable economic institutions ensure the appropriability of rents in form of a state of law. We study the conditions under which a state of law can be implemented under oligarchy, and when democratization is necessary. Inequality in endowments and incomes prolongs the absence of good institutions and delays democratization. Conversely, institutions shape the income distribution. Simulations illustrate how inequality affects the development process and may lead to overtaking and divergence. The implications are in line with historical and empirical evidence.
    Keywords: inequality, democratization, institutions, state of law, long-term development
    JEL: H10 O20 N10
    Date: 2005–01
  4. By: Michael Johnston; Sahr J. Kpundeh
    Abstract: Many societies have limited corruption through the broad-based mobilization of a diverse range of interests willing and able to defend themselves by making meaningful demands for accountability of, and limits on, official power, and for an end to illicit advantages enjoyed by others. Historically such a process has taken place gradually, as political development has proceeded and the base of participation broadens. But today’s high-corruption societies cannot wait for several generations to see such developments take place. Johnston and Kpundeh argue that social action coalitions, linking public and private actors, are a way to mobilize these sorts of participation and advocacy. Such coalitions are neither a new idea nor a guarantee of successful reforms. In many instances they win out by default as an anti-corruption strategy. But they contend that if sustained by careful planning and a diverse set of incentives, they can reinforce political will and enhance the strength of civil society. Coalition-building efforts are underway in many societies. But too often they have focused only on anti-corruption tactics and pursuing their own growth, rather than looking at the coalition-building process in more general terms. In Part I, the authors employ Wilson’s (1973) analysis of the incentives that motivate and reward participation in organizations. This approach helps them identify ways in which the anti-corruption goals can be augmented by other kinds of appeals, even when material incentives are scarce. The authors also identify four stages of the coalition-building process—formation, credibility, expansion, and transformation—in which differing combinations of incentives will be necessary to address the group’s most important problems and opportunities. In Part II the authors examine two important coalition-building efforts in light of the discussions thus far—Ghana’s Anti-Corruption Coalition, and the Bangalore Agenda Task Force in Bangalore, Karnataka State, India. In Part III the authors link those cases to a broader analysis, suggesting that while purposive incentives are common in the early phases of all coalitions, other varieties must be added to the mix. Wilson’s scheme points to ways in which the imaginative use of incentives can aid the transition from one phase of coalition development to the next. The authors conclude with general strategic issues, suggesting ways in which their analysis can be applied to those questions given the important variations to be found among cases. This paper—a product of the Governance, Finance, and Regulation Division, World Bank Institute—is part of a larger effort in the institute to address governance and anti-corruption issues in developing countries.
    Keywords: Governance; Public Sector Management
    Date: 2005–01–05
  5. By: Norman V. Loayza (World Bank); Ana Maria Oviedo; Luis Serven
    Abstract: Regulation is purportedly enacted to serve specific social purposes. In reality, however, it follows a more complex political economy process, where legitimate social goals are mixed with the objectives of particular interest groups. Whatever its justification and objectives, regulation can have potentially significant macroeconomic consequences by helping or hampering the dynamics of economic restructuring and resource reallocation that underlie the growth process. Loayza, Oviedo, and Servén provide an empirical analysis of the macroeconomic impact of regulation. They first characterize the stylized facts on regulation across the world using a set of newly constructed, comprehensive indicators of regulation in a large number of countries in the 1990s. Using these indicators, the authors study the effects of regulation on economic growth and macroeconomic volatility using cross-country regression analysis. In particular, they consider whether the effects of regulation are affected by the country’s level of institutional development. Finally, their analysis controls for the likely endogeneity of regulation with respect to macroeconomic performance. The authors conclude that a heavier regulatory burden reduces growth and increases volatility, although these effects are smaller the higher the quality of the overall institutional framework. This paper—a product of the Growth and Investment Team, Development Research Group—is part of a larger effort in the group to understand the process of economic reform.
    Keywords: Governance; Labor & Employment; Macroecon & Growth; Private Sector Development
    Date: 2005–01–03

This nep-pol issue is ©2005 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.