Political institutions and incentives for economic reforms [Elektronische Ressource] / vorgelegt von Kira Astrid Börner

Börner, Kira Astrid

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2005
• Nombre de lectures: 15
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

POLITICAL INSTITUTIONS AND
INCENTIVES FOR ECONOMIC
REFORMS
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universitat¨ Munc¨ hen
2005
vorgelegt von
Kira Astrid Bo¨rner
Volkswirtschaftliche Fakult¨at
Referentin: Prof. Dr. Monika Schnitzer
Korreferent: Prof. Dr. Klaus M. Schmidt
Datum der mundlic¨ hen Prufung:¨ 26. Januar 2005
Promotionsabschlussberatung: 09. Februar 2005Acknowledgements
The realization of this research project would not have been possible with-
out the kind support of a number of people. First and foremost I would like to
thank my supervisor Monika Schnitzer. She steadily supported my work with
new ideas, valuable comments, and encouragement. I am also deeply grateful
to my coauthor Christa Hainz. Working jointly with her was and continues to
beagreatsourceofmutualsupport,inspiration,andmotivation. Furthermore,
I would like to thank Raji Jayaraman for guiding and encouraging me in the
very early stages of this project. My thanks extend to many other friends and
colleagues at the University of Munich from whom I have received comments
and suggestions.
I am grateful to Guido Tabellini and the Faculty of Economics at Bocconi
University in Milan for hosting me as a visiting Ph.D. student in spring 2003.
MyresearchhasgreatlybenefitedfromthecontactsthatImadethere. Iwould
also like to thank Friedrich Kratochwil for providing me with an excellent
education in political science which has proven to be highly useful for the
present research project.
Finally, I would like to thank my family for believing in the success of this
project from the very beginning.Contents
1 Introduction 1
1.1 Main Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Aims and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Outline of the Study . . . . . . . . . . . . . . . . . . . . . . . . 5
2 Political Institutions 9
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Defining Political Institutions . . . . . . . . . . . . . . . . . . . 13
2.3 Effects of Political Institutions . . . . . . . . . . . . . . . . . . . 20
2.3.1 Theoretical Literature . . . . . . . . . . . . . . . . . . . 20
2.3.2 Empirical Literature . . . . . . . . . . . . . . . . . . . . 29
2.4 Political and Economic Institutions . . . . . . . . . . . . . . . . 33
2.5 Endogenous Political Institutions . . . . . . . . . . . . . . . . . 35
2.6 Economic Reforms . . . . . . . . . . . . . . . . . . . . . . . . . 41
3 Privatization 45
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.2.1 General Features . . . . . . . . . . . . . . . . . . . . . . 51
3.2.2 Privatization . . . . . . . . . . . . . . . . . . . . . . . . 56
3.2.3 Restructuring . . . . . . . . . . . . . . . . . . . . . . . . 58
3.3 The Welfare-Oriented Government . . . . . . . . . . . . . . . . 58
3.4 The Voter-Oriented Government . . . . . . . . . . . . . . . . . . 62
iii CONTENTS
3.5 The Revenue-Oriented Government . . . . . . . . . . . . . . . . 66
3.6 Incentives for Privatization . . . . . . . . . . . . . . . . . . . . . 69
3.6.1 Incentives of the Voter-Oriented Government . . . . . . . 69
3.6.2 Incentives of the Revenue-Oriented Government . . . . . 71
3.7 The Impact of Institutions . . . . . . . . . . . . . . . . . . . . . 74
3.8 Which Government is Better? . . . . . . . . . . . . . . . . . . . 75
3.9 Empirical Observations . . . . . . . . . . . . . . . . . . . . . . . 77
3.10 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.11 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4 Government Inertia 87
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
4.2 The Case of Access to Medicines. . . . . . . . . . . . . . . . . . 92
4.3 The Two-Stage Political Process . . . . . . . . . . . . . . . . . . 94
4.3.1 The Policy Choice . . . . . . . . . . . . . . . . . . . . . 96
4.3.2 The Implementation Choice . . . . . . . . . . . . . . . . 100
4.4 Lobbying by Contributions: Equilibrium . . . . . . . . . . . . . 103
4.4.1 Stage Two . . . . . . . . . . . . . . . . . . . . . . . . . . 104
4.4.2 Stage One . . . . . . . . . . . . . . . . . . . . . . . . . . 105
4.4.3 No Lobbying in the First Stage . . . . . . . . . . . . . . 108
4.5 Results of the Two-Stage Game . . . . . . . . . . . . . . . . . . 108
4.6 Lobbying by Advertising . . . . . . . . . . . . . . . . . . . . . . 114
4.7 Conclusion and Policy Implications . . . . . . . . . . . . . . . . 120
4.7.1 Design of the Political Process . . . . . . . . . . . . . . . 120
4.7.2 Changing the Lobbies’ Attitude . . . . . . . . . . . . . . 122
4.7.3 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 123
4.8 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5 Corruption 135
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135CONTENTS iii
5.2 Corruption and Entry Fees . . . . . . . . . . . . . . . . . . . . . 140
5.3 Financing the Entry Fee . . . . . . . . . . . . . . . . . . . . . . 142
5.3.1 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . 142
5.3.2 The Economy without Financial Institutions . . . . . . . 145
5.3.3 They with Financial Institutions . . . . . . . . . 148
5.4 Voting on Anti-Corruption Policies . . . . . . . . . . . . . . . . 152
5.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
5.5.1 Corruption Level without Financial Institutions . . . . . 156
5.5.2 Corruption Level with Financial Institutions . . . . . . . 157
5.5.3 Effects of Financial Institutions . . . . . . . . . . . . . . 159
5.6 Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
5.6.1 Endogenizing the Entry Fee . . . . . . . . . . . . . . . . 163
5.6.2 Corruption in the Entrepreneurial Sector . . . . . . . . . 169
5.7 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
5.8 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
6 Concluding Remarks 181
6.1 Main Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
6.2 Topics for Future Research . . . . . . . . . . . . . . . . . . . . . 184
Bibliography 187Chapter 1
Introduction
1.1 Main Motivation
Even when economists give advice to politicians, we can observe that the final
policy choices and economic outcomes differ substantially from what economic
theory would suggest as the optimal solutions. Given this, why is it the case
thatpoliticianschooseinefficienteconomicpoliciesanddonotimplementmore
efficient alternatives?
Political practitioners often explain such suboptimal outcomes by saying
that the efficient policy would not be politically viable. That is, even if a
policy problem had an efficient solution, it would not be implementable in the
political process. What is the meaning of such an argument? A very simple
explanation would point to the individual policy preferences of politicians:
One could suspect them of blocking the implementation of efficient solutions
because they individually prefer another policy.
However,thisexplanationisnotsatisfying. Giventhecomplexityofthepo-
liticalprocess,itisunlikelythatthepersonalinterestsofsingledecision-makers
fully determine which policies are implemented and which are not. Moreover,
modern democratic systems are designed such as to avoid the predominance of
the private interests of politicians and to ensure the representation of the po-
litical will of the citizens. Thus, each policy choice has a number of structural
determinants. The set of feasible policy alternatives is not primarily defined
by the preferences of individual politicians but by the structure of the political
system itself.
12 CHAPTER 1. INTRODUCTION
In order to see why inefficient policies are chosen, it is not sufficient to
look at individual politicians and their personal preferences. Rather, we have
to analyze the framework where the political decision-makers operate in. This
frameworkisgivenbythepoliticalinstitutionsinapolity, thatis, inapolitical
1system. However, political institutions do not directly determine economic
outcomes. Rather, they channel the incentives of politicians to choose and
implementpolicies. Thepersonalpolicypreferencesofpoliticiansaremitigated
by an array of institutional provisions that curb the abuse of political power
and enable democratic participation. Variations in this incentive structure
may lead to different policy choices and economic outcomes.
Moreover, political institutions give rise to additional incentives for politi-
cians that are independent of their individual policy preferences. For example,
if politicians have the desire to stay in office, they have the incentives, for all
policy issues in question, to choose those policies that increase their chance of
2reelection. Whether the individual policy preferences of politicians then still
matter, depends on the strength of the constraints that the political institu-
tions create. Only when these constraints are relatively weak, the individual
politician is still decisive for shaping policies and economic outcomes.
In this investigation, we n