During political campaigns, candidates often set their sights on CEO compensation as a target for potential regulation. This column considers the various arguments for regulating CEO pay and questions whether it is a legitimate target for political intervention. Some arguments for regulation are shown to be erroneous, and some previous interventions are shown to have failed. While regulation can address the symptoms, only independent boards and large shareholders can solve the underlying problems.
Alex Edmans, 23 September 2016
Ernesto Dal Bó, Pablo Hernandez-Lagos, Sebastián Mazzuca, 26 July 2016
While cases of state failure have risen in the last decade, most notably in the Middle East and sub-Saharan Africa, they are not a new phenomenon. Historical evidence from the early modern period, and even the Bronze Age, shows that the majority of formed states have failed rather than thrived. This column introduces the ‘paradox of civilisation’ to characterise the obstacles settlements face in establishing civilisations. The paradox defines the success of a civilisation as a trade-off between the ability to produce economic surplus and to protect it. It is therefore important to correctly balance military and economic support when providing aid.
Giacomo De Luca, Roland Holder, Paul Raschky, Michele Valsecchi, 21 July 2016
Ethnic favouritism is widely regarded as an African phenomenon, or at most a problem of poor and weakly institutionalised countries. This column uses data on night-time light intensity to challenge these preconceptions. Ethnic favouritism is found to be as prevalent outside of Africa as it is within, and not restricted to poor or autocratic nations either. Rather, re-election concerns appear to be an important driver of the practice.
Enikolopov Enikolopov, Maria Petrova, Konstantin Sonin, 20 June 2016
In addition to the traditional mass media, social media has become a channel through which citizens can hold public officials and corporate leaders to account. But social media commentators can be vulnerable to manipulation and reputational damage. This column uses data on a popular blogger in Russia to show that blogs are critical of corruption in state-controlled companies can lead to decreased profit diversion and corruption by the targeted companies. Social media appears to play an important role in improving accountability, particularly when traditional media is censored or political competition is limited.
Nicola Fuchs-Schündeln, Paolo Masella, 05 June 2016
There are strong links between the nature of education in a country and its political institutions, and an individual’s education can impact their lifetime labour market choices. This column examines how being educated under a socialist regime impacts individuals in a free labour market. Using data on students from East and West Germany in the 1970s, it finds that a socialist regime education led to a larger spread in labour market outcomes – more of these individuals were not employed, but conditional on being employed, had higher wages and a higher probability of achieving a professional status in the East.
Marcel Fafchamps, Julien Labonne, 31 May 2016
Politicians may have the opportunity to interfere with the allocation of public services to help to achieve their electoral objectives. This column argues that politicians share rents with central players to build and sustain coalitions. Using detailed data from the Philippines, it examines social networks and the allocation of municipal services. Households with greater potential to broker political coalitions do indeed appear to receive more services from their municipal government.
Marco Manacorda, Andrea Tesei, 22 May 2016
Digital technologies have been widely used for political activism in recent years, including during the Arab Spring, the Occupy Wall Street movement, and the Indignados movement in Spain. This column reports research showing that the growing use of mobile phones in Africa leads to more political protests during recessions and periods of national crisis. The mobilising potential of digital technologies is more pronounced in autocratic countries and those where the raditional media are under state control, suggesting that this technology may play a key role in fostering political freedom.
Brian Knight, Ana Tribin, 06 May 2016
The media plays a significant role in politics, but households can choose not to consume political propaganda delivered through the media. This column uses evidence from Venezuela to show that households that support opposition parties are more inclined to switch away from, or tune out of, government propaganda delivered via the television. Higher-income households, which tend to have access to alternative channels via cable, are also less likely to consume propaganda. These findings have significant implications for politically polarised societies.
Hans Gersbach, 27 February 2016
Current office-holders often seem to be re-elected quite easily, irrespective of their performance. This ‘incumbency advantage’ make it harder for first-time candidates and undermines democratic competition. This column proposes a new rule for re-election – the score-replication rule. In its simplest form, such a rule would require incumbents to obtain a percentage of votes at least as high as their highest historical election performance. This would restrain the negative incumbency advantage and potentially reduce policy polarisation.
Daniel Gros, 12 February 2016
The Eurozone’s ‘Banking Union’ created a system of banking supervision and a common institution to restructure troubled banks. There remain two issues, however, that need to be addressed: banks are holding too much debt of their own sovereign, and deposit insurance is only backstopped at the national level. This column argues that these issues need to be addressed simultaneously for economic and political reasons. Specifically, periphery and core countries hold opposing positions on remedies to the respective problems. A combination of the two makes economic sense and could represent an acceptable political compromise.
Alessandro Gavazza, Mattia Nardotto, Tommaso Valletti, 31 January 2016
The internet is lauded for increasing access to information, but it is unclear whether this translates into a better-informed and more engaged voting populace. This column uses UK data to determine how the internet has changed voting patterns and aggregate policy choices. Internet penetration is found to be associated with a decrease in voter turnout, mainly among the lower socioeconomic demographic. Internet diffusion is also found to reduce local government expenditure, in particular on policies targeting less-educated voters. These findings point to a trade-off between the ‘digital divide’ and the ‘political divide’.
Alessandra Bonfiglioli, Gino Gancia, 19 December 2015
The Great Recession highlighted the prominent role that economic uncertainty plays in hindering investment and growth. This column provides new evidence that economic uncertainty can actually play a positive role by promoting the implementation of structural reforms with long-run benefits. The effect appears to be strongest for countries with poorly informed voters. These findings suggest that times of uncertainty may present an opportunity to implement reforms that would otherwise not be passed.
Jiangtao Fu, Daichi Shimamoto, Yasuyuki Todo, 01 December 2015
It has been widely argued that firms obtain loans with relaxed terms if they are politically connected. This column presents evidence from Indonesia that firms whose owners or directors have a personal relationship with a politician are more likely to have their loans approved by state-owned banks, and are more likely to receive the full amount applied for. However, the labour productivity of such firms is on average lower. This suggests that in some cases, politically connected lending may distort the efficiency of resource allocation and be detrimental to economic development.
Manuel Funke, Moritz Schularick, Christoph Trebesch, 21 November 2015
Recent events in Europe provide ample evidence that the political aftershocks of financial crises can be severe. This column uses a new dataset that covers elections and crises in 20 advanced economies going back to 1870 to systematically study the political aftermath of financial crises. Far-right parties are the biggest beneficiaries of financial crises, while the fractionalisation of parliaments complicates post-crisis governance. These effects are not observed following normal recessions or severe non-financial macroeconomic shocks.
Jamal Haidar, Takeo Hoshi, 21 October 2015
The Abe administration has outlined a desire for Japan to rank among the top three OECD countries in the World Bank’s Doing Business ranking. This column uses the Doing Business ranking itself to identify potential reforms the country could pursue to improve its position. Several politically viable, non-judicial reforms could quickly and easily move Japan up in the ranking. The approach highlights how the Doing Business rankings can be used to inform policy reform discussions.
James Robinson, Ragnar Torvik, Thierry Verdier, 27 July 2015
Economists have long understood that policy chosen by politics is unlikely to be socially optimal. This is because politicians face the probability of losing power and may discount the future too much, or act to improve their re-election probability. This column explores these issues taking into account the fact that future government revenue is uncertain. Public income volatility acts to reduce the efficiency of public policy. This has important implications for developing countries that rely on income from volatile sources, such as natural resource extraction.
Nauro Campos, Fabrizio Coricelli, 17 July 2015
Greece’s reluctance to implement ‘the structural reforms required for debt sustainability’ is a recurrent theme in the debate on the EZ Crisis. This column qualifies this conventional wisdom by reassessing the relationship between Greece and the EU over the past four decades. Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites. The role that structural reforms can play in solving the current crisis should not be overestimated.
Roland Bénabou, Davide Ticchi , Andrea Vindigni, 19 April 2015
History offers many examples of the recurring tensions between science and organized religion, but as part of the paper’s motivating evidence we also uncover a new fact: in both international and cross-state U.S. data, there is a significant and robust negative relationship between religiosity and patents per capita. Three long-term outcomes emerge. First, a "Secularization" or "Western-European" regime with declining religiosity, unimpeded science, a passive Church and high levels of taxes and transfers. Second, a "Theocratic" regime with knowledge stagnation, extreme religiosity with no modernization effort, and high public spending on religious public goods. In-between is a third, "American" regime that generally (not always) combines scientific progress and stable religiosity within a range where religious institutions engage in doctrinal adaptation.
Christoph Trebesch, Helios Herrera, Guillermo Ordoñez, 06 September 2014
Financial crises are often credit booms gone bust. This column argues that ‘political booms’, defined as an increase in government popularity, are also a good predictor of financial crises. The phenomenon of ‘political booms gone bust’ is, however, only observable in emerging markets. In these countries, politicians have more to gain from riding the popularity benefits of unsustainable booms.
Alan Blinder, Mark Watson, 04 September 2014
Since World War II, economic growth has been faster in the US under Democratic presidents than under Republican ones. This column documents that which party controls Congress does not matter for growth, that the Democratic growth advantage is concentrated in the first two years of a presidency, and that presidential party affiliation Granger-causes growth. Neither fiscal nor monetary policy can account for this gap. Instead, the factors that have explanatory promise are: shocks to oil prices, total factor productivity, European growth, and consumer expectations of future economic conditions.