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Standard models of hierarchy assume that agents and middle managers are better informed than principals. We estimate the value of the informational advantage held by supervisors—middle managers—when ministerial leadership—the principal—introduced a new monitoring technology aimed at improving the performance of agricultural extension agents (AEAs) in rural Paraguay. Our approach employs a novel experimental design that elicited treatment‐priority rankings from supervisors before randomization of treatment. We find that supervisors have valuable information—they prioritize AEAs who would be more responsive to the monitoring treatment. We develop a model of monitoring under different scales of treatment roll‐out and different treatment allocation rules. We semiparametrically estimate marginal treatment effects (MTEs) to demonstrate that the value of information and the benefits to decentralizing treatment decisions depend crucially on the sophistication of the principal and on the scale of roll‐out.

Full text and PDF of this article will be published in August 2018 We provide a model of self-selection by candidates in a probabilistic voting environment to shed light on the forces shaping the quality of politicians from both the supply and demand sides of politics. The model highlights the idea that the patterns of selection and the comparative statics of politician quality depend critically on how the costs of running for office vary for candidates with different qualities. The model offers predictions on how the quality of the political class will vary with key parameters pertaining to both the supply and demand for candidates. We use the model to frame a review of the empirical literature on political selection that has emerged over the past two decades. We contrast areas where significant progress has been made with others where important theoretical predictions remain untested or existing evidence does not allow a consensus, highlighting areas for future research.

We model religious faith as a “demand for beliefs,” following the logic of the Pascalian wager. We show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs. We implemented this approach with members of a group that expected the “End of the World” to occur on May 21, 2011 by varying monetary prizes payable before and after May 21st. To our knowledge, this is the first incentivized elicitation of religious beliefs ever conducted. The results suggest that the members held extreme, sincere beliefs that were unresponsive to experimental manipulations in price.

Most of the political economy literature blames inefficient policies on institutions or politicians’ motives to supply bad policy, but voters may themselves be partially responsible by demanding bad policy. In this article, we posit that voters may systematically err when assessing potential changes in policy by underappreciating how new policies lead to new equilibrium behaviour. This biases voters towards policy changes that create direct benefits—welfare would rise if behaviour were held constant—even if those reforms ultimately reduce welfare because people adjust behaviour. Conversely, voters are biased against policies that impose direct costs even if they induce larger indirect benefits. Using a lab experiment, we find that a majority of subjects vote against policies that, while inflicting direct costs, would help them to overcome social dilemmas and thereby increase welfare. Subjects also support policies that, while producing direct benefits, create social dilemmas and ultimately hurt welfare. Both mistakes arise because subjects fail to fully anticipate the equilibrium effects of new policies. More precisely, we establish that subjects systematically underappreciate the extent to which policy changes will affect the behaviour of other people, and that these mistaken beliefs exert a causal effect on the demand for bad policy.

Can a democracy attract competent leaders, while attaining broad representation? Economic models suggest that free-riding incentives and lower opportunity costs give the less competent a comparative advantage at entering political life. Moreover, if elites have more human capital, selecting on competence may lead to uneven representation. This article examines patterns of political selection among the universe of municipal politicians and national legislators in Sweden, using extraordinarily rich data on competence traits and social background for the entire population. We document four new facts that together characterize an “inclusive meritocracy.” First, politicians are on average significantly smarter and better leaders than the population they represent. Second, this positive selection is present even when conditioning on family (and hence social) background, suggesting that individual competence is key for selection. Third, the representation of social background, whether measured by parental earnings or occupational social class, is remarkably even. Fourth, there is at best a weak trade-off in selection between competence and social representation, mainly due to strong positive selection of politicians of low (parental) socioeconomic status. A broad implication of these facts is that it is possible for democracy to generate competent and socially representative leadership.

The use of moral appeals to affect the behavior of others is pervasive (from the pulpit to ethics classes) but little is known about the effects of moral suasion on behavior. In a series of experiments we study whether moral suasion affects behavior in voluntary contribution games and mechanisms by which behavior is altered. We find that observing a message with a moral standard according to the golden rule or, alternatively, utilitarian philosophy, results in a significant but transitory increase in contributions above the levels observed for subjects that did not receive a message or received a message that advised them to contribute without a moral rationale. When players have the option of punishing each other after the contribution stage the effect of the moral messages on contributions becomes persistent: punishments and moral messages interact to sustain cooperation. We investigate the mechanism through which moral suasion operates and find it to involve both expectation- and preference-shifting effects. These results suggest that the use of moral appeals can be an effective way of promoting cooperation.

We study political dynasties in the United States Congress since its inception in 1789. We document historic and geographic patterns in the evolution and profile of political dynasties, study the extent of dynastic bias in legislative politics versus other occupations, and analyze the connection between political dynasties and political competition. We also study the self-perpetuation of political elites. We find that legislators who enjoy longer tenures are significantly more likely to have relatives entering Congress later. Using instrumental variables methods, we establish that this relationship is causal: a longer period in power increases the chance that a person may start (or continue) a political dynasty. Therefore, dynastic political power is self-perpetuating in that a positive exogenous shock to a person's political power has persistent effects through posterior dynastic attainment. In politics, power begets power.

We present a model where a long run player is allowed to use both money transfers and threats in her attempts to in‡uence the decisions of a sequence of short run players. We show that threats might be used credibly (even in arbitrarily short repeated games) by a long-lived player who gains by developing a reputation of carrying out punishments. This model comprises as particular cases that of a long-lived pressure group

We investigate the determinants of the efficiency of firms with a focus on the role of corruption. We construct a simple theoretical model where corruption increases factor requirements of firms because it diverts managerial effort away from factor coordination. We then exploit a unique dataset comprising firm-level information on 80 electricity distribution firms from 13 Latin American countries for the years 1994 to 2001. As predicted by the model, we find that more corruption in the country is strongly associated with more inefficient firms, in the sense that they employ more inputs to produce a given level of output. The economic magnitude of the effects is large. The results hold both in models with country and firm fixed effects. The results survive several robustness checks, including different measures of output and efficiency, and instrumenting for corruption. Other elements associated with inefficiency are public ownership, inflation, and lack of law and order, but corruption appears to play a separate and more robust role.

This article reviews both the theoretical and empirical literatures on regulatory capture. The scope is broad, but utility regulation is emphasized. I begin by describing the Stigler--Peltzman approach to the economics of regulation. I then open the black box of influence and regulatory discretion using a three-tier hierarchical agency model under asymmetric information (in the spirit of Laffont and Tirole, 1993). I discuss alternative modelling approaches with a view to a richer set of positive predictions, including models of common agency, revolving doors, informational lobbying, coercive pressure, and influence over committees. I discuss empirical work involving capture and regulatory outcomes. I also review evidence on the revolving-door phenomenon and on the impact that different methods for selecting regulators appear to have on regulatory outcomes. The last section contains open questions for future research. Copyright 2006, Oxford University Press.

A fundamental problem for government is how to combine commitment to certain policies with the flexibility required to adjust them when needed. Rogoff (1985) [Rogoff, K., 1985. The optimal degree of commitment to an intermediate monetary target, Q. J. Econ. 100(4) 1169–1189] showed that a way to strike the right balance is to appoint an optimally “conservative” policy-maker. In real life, however, policy-makers also have power over decisions where optimal plans are time-consistent, so delegating to a conservative person could be undesirable. A flexible delegation device can be found in a large committee of randomly appointed members voting over policy after observing a shock. When facing dynamic inconsistency, under a single-crossing property, there exists a supermajority rule that implements the population median's optimally conservative policy-maker with certainty. Another single-crossing property guarantees that if simple majority voting is used to select the voting rule that will govern policy choice, the supermajority preferred by the median is chosen. For problems where dynamic inconsistency vanishes, the committee will choose to make decisions by simple majority, implementing median outcomes. An application to monetary policy is developed. We show that the optimal supermajority is higher when dynamic inconsistency is more severe, when preferences are more homogeneous, and when the economy is less volatile.

We analyze a simple stochastic environment in which policy makers can be threatened by "nasty" interest groups. In the absence of these groups, the policy maker's desire for reelection guarantees that good policies are implemented for every realization of the shock. When pressure groups can harass the policy maker, good policies will be chosen for only a subset of states of nature. Hence, honest and able leaders might implement bad policies, and needed reforms could be delayed. In order to make good policies more likely, the public will want to increase the cost of exerting pressure for "nasty groups" and provide rents to those in power. This last result can be used to explain the existence of political parties. They play a role resembling that of the supervisor in the literature on collusion in hierarchical agency. A rational public may also choose to ignore negative media reports on a politician's personal life and, in general, elect "strong" political leaders. The prevalence of coercive methods of influence helps explain why countries may get to be governed by "inept politicians."

We study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized. Screening relied on exams designed to measure applicants’ intellectual ability, personality, and motivation. This allows the first experimental estimates of (1) the role of financial incentives in attracting a larger and more qualified pool of applicants, (2) the elasticity of the labor supply facing the employer, and (3) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities. A theoretical model of job applications and acceptance guides the empirical inquiry. We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity toward public sector work—that is, we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates, but higher wages help bridge the recruitment gap in worse municipalities.