Grease
Does it matter who pays for bond ratings? Historical evidence
John (Xuefeng) Jiang, Mary Harris Stanford & Yuan Xie
Journal of Financial Economics, forthcoming
Abstract:
We test whether Standard and Poor's (S&P) assigns higher bond ratings after it switches from investor-pay to issuer-pay fees in 1974. Using Moody's rating for the same bond as a benchmark, we find that when S&P charges investors and Moody's charges issuers, S&P's ratings are lower than Moody's. Once S&P adopts issuer-pay, its ratings increase and no longer differ from Moody's. More importantly, S&P only assigns higher ratings for bonds that are subject to greater conflicts of interest, measured by higher expected rating fees or lower credit quality. These findings suggest that the issuer-pay model leads to higher ratings.
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A Field Experiment on Legislators' Home Styles: Service versus Policy
Daniel Butler, Christopher Karpowitz & Jeremy Pope
Journal of Politics, April 2012, Pages 474-486
Abstract:
We conducted a field experiment involving roughly 1,000 letters sent by actual individuals to nearly 500 different legislative offices in order to test whether legislative offices prioritize service over policy in their home style. We find strong evidence that both state and federal legislative offices are more responsive to service requests than they are to policy requests. This pattern is consistent with the desire of legislators to gain leeway with their constituents in order to pursue their own policy goals. We also find that at the federal level Democrats prioritize service over policy more than Republicans and at the state level legislators who won by larger margins are more likely to prioritize service over policy. Finally, our results suggest that the decision to prioritize service occurs in how the office is structured. Among other things this suggests that legislators may be microtargeting less than is often supposed.
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David Steinberg & Victor Shih
Comparative Political Studies, forthcoming
Abstract:
Why do countries keep their exchange rates weak and undervalued? This article argues that domestic politics is more important than systemic factors, but existing domestic political explanations do not fully explain how interest group preferences and political institutions influence exchange rate policy. The authors argue that tradable industries do not always demand an undervalued exchange rate, but do so only when they are unable to receive other compensatory policies. In addition, interest groups have a larger impact on exchange rate policy in nondemocratic regimes than is often recognized: Autocrats select exchange rate policies that correspond to the preferences of the most powerful interest groups because lobby groups have access to the political process and leaders are sensitive to their preferences. A case study of exchange rate policy in China supports these arguments. The major decisions to maintain an undervalued exchange rate in China were taken in response to demands for undervaluation from tradable industries. Second, the case study shows that exporters' preferences for undervaluation ebb and flow with the policy mix: Tradable firms lobbied for an undervalued exchange rate when no other compensatory policies were implemented, but they did not insist on undervaluation in periods when they benefited from other state policies. The authors conclude that China keeps its exchange rate undervalued because the interest groups that support undervaluation are more powerful than those that oppose undervaluation. These findings indicate that interest groups influence exchange rate policy in authoritarian regimes, but their preferences for undervalued exchange rates are quite malleable.
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Individual political contributions and firm performance
Alexei Ovtchinnikov & Eva Pantaleoni
Journal of Financial Economics, forthcoming
Abstract:
We present evidence that individuals make political contributions strategically by targeting politicians with power to affect their economic well-being. Individuals in Congressional districts with greater industry clustering choose to support politicians with jurisdiction over the industry. Importantly, individual political contributions are associated with improvements in operating performance of firms in industry clusters. The relation between contributions and firm performance is strongest for poorly performing firms, firms closer to financial distress, and for contributions in close elections. The results imply that individual political contributions are valuable to firms, especially during bad economic times.
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The Distortion Gap: Policymaking under Federalism and Interest Group Capture
Ryan Moore & Christopher Giovinazzo
Publius, Spring 2012, Pages 189-210
Abstract:
Which should be preferred in a federal system, state- or national-level policymaking? Though theory suggests that more voters are satisfied by local control, we identify new conditions under which national policymaking is preferred based solely on the distorting influence of interest groups. Even when interest groups capture state policymaking at the same rate as states' national representatives, a "distortion gap" exists between the two regimes. We find that national policymaking provides more aggregate welfare when voters widely disagree with moderately prevalent strong interest groups, refining Madison's prescription for national policymaking to counter local factions. We show that other justifications for national policymaking (such as avoiding spillovers and overcoming interest groups' easier capture of state than national politics) are not necessary to prefer national policies.
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What makes a critic tick? Connected authors and the determinants of book reviews
Loretti Dobrescu, Michael Luca & Alberto Motta
Harvard Working Paper, March 2012
Abstract:
This paper investigates the determinants of expert reviews in the book industry. Reviews are determined not only by the quality of the product, but also by the incentives of the media outlet providing the review. For example, a media outlet may have the incentive to provide favorable coverage to certain authors or to slant reviews toward the horizontal preferences of certain readers. Empirically, we find that an author's connection to the media outlet is related to the outcome of the review decision. When a book's author also writes for a media outlet, that outlet is 25% more likely to review the book relative to other media outlets, and the resulting ratings are roughly 5% higher. Prima facie, it is unclear whether media outlets are favoring their own authors because these are the authors that their readers prefer or simply because they are trying to collude. We provide a test to distinguish between these two potential mechanisms, and present evidence that this is because of tastes rather than collusion -- the effect of connections is present both for authors who began writing for a media outlet before and after the book release. We then investigate other determinants of expert reviews. Relative to consumer reviews, we find that professional critics are less favorable to first time authors and more favorable to authors who have garnered other attention in the press (as measured by number of media mentions outside of the review) and who have won book prizes.
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Alan Freed still casts a long shadow: The persistence of payola and the ambiguous value of music
Charles Fairchild
Media, Culture & Society, April 2012, Pages 328-342
Abstract:
Despite the enormous changes in the music industry in recent years, some things have persisted. Payola, the exchange of money or promotional consideration for radio airplay, has persisted if not increased over the past decade in the United States. This is due to the corresponding persistence of a series of contradictory social relationships between broadcasters, their sponsors and the audiences they seek to construct and maintain through the targeted deployment of music. I show here that payola, and its more legitimate cousin deregulation, are forms of ‘inter-elite communication' designed to make the market in music more manageable and stable.
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The Iceberg Theory of Campaign Contributions: Political Threats and Interest Group Behavior
Marcos Chamon & Ethan Kaplan
American Economic Journal: Economic Policy, forthcoming
Abstract:
We present a model of campaign contributions where special interest groups condition contributions on the receiving candidate's support and also her opponent's. This allows interest groups to obtain support contributions as well as from threats of contributing. Out-of-equilibrium contributions help explain the missing money puzzle. Our framework contradicts standard models in predicting that interest groups give to only one side of a race. We also predict that special interest groups will mainly target lop-sided winners whereas general interest groups will contribute mainly to candidates in close races. We verify these predictions in FEC data for U.S. House Elections from 1984-1990.
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Yan Leung Cheung, Raghavendra Rau & Aris Stouraitis
NBER Working Paper, April 2012
Abstract:
We analyze a hand-collected sample of 166 prominent bribery cases, involving 107 publicly listed firms from 20 stock markets that have been reported to have bribed government officials in 52 countries worldwide during 1971-2007. We focus on the initial date of award of the contract for which the bribe was paid (rather than of the revelation of the bribery). Our data enable us to describe in detail the mechanisms through which bribes affect firm value. We find that firm performance, the rank of the politicians bribed, as well as bribe-paying and bribe-taking country characteristics affect the magnitude of the bribes and the benefits that firms derive from them.
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Nadia Vanteeva & Charles Hickson
Comparative Economic Studies, March 2012, Pages 173-201
Abstract:
Using firm-level information obtained from the Russian Trading System stock exchange from 1998 through 2006, we estimate growth performance of the Russian corporate sector. We find consistently improving growth, and note that higher growth performance is correlated with greater partial state re-acquisition and state corporate governance presence. We argue that the latter served, not only to safeguard against misappropriation of firm assets and government subsidies, but also to discourage managers from opting for shorter than optimal investment durations. Thus state corporate-governance strategy may serve as a second best policy to a more developed property rights system.
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Who bribes? Evidence from the United Nations' Oil-for-Food program
Yujin Jeong & Robert Weiner
Strategic Management Journal, forthcoming
Abstract:
How do managers react in an environment where bribery is likely to bring high rewards, but also presents high risks? We examine the supply side (firms' illicit payments) of bribery in a global setting using the United Nations' (UN) Oil-for-Food Program, part of UN sanctions on Iraq. Some companies helped Iraq circumvent UN sanctions through bribe payments in the form of illicit surcharges. Our transaction-level analysis of factors affecting bribe payments draws on the economic theory of crime, agency theory, and home country institutions. Results suggest that firms pay larger bribes when there are stronger financial and managerial incentives, but pay less when their home-countries have implemented the OECD Anti-Bribery Convention. We find little relationship between a widely used country-level corruption perception index and firms' actual bribery.
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Mediated Density: The Indirect Relationship between U.S. State Public Policy and PACs
Jennifer Benz et al.
State Politics & Policy Quarterly, December 2011, Pages 440-459
Abstract:
How does the demand for lobbying reflected by government policy activity influence the use of lobbying strategies and tactics? The authors examine this question by assessing how the complexity of the policy space affects the political action committee (PAC) system. They hypothesize that the complexity of the policy space indirectly affects the size and activity of the PAC system through its direct effect on interest organization density. The authors test this hypothesis within the health sector using a unique data set that connects individual interest organizations registered to lobby U.S. state legislatures with active PACs in the state. It appears that social, economic, and political measures of policy space complexity influence the size of the lobbying community, which in turn influences the size and activity of the PAC community.
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Sweetening the Deal? Political Connections and Sugar Mills in India
Sandip Sukhtankar
American Economic Journal: Applied Economics, forthcoming
Abstract:
Political control of firms is prevalent across the world. Evidence suggests that firms profit from political connections, and politicians derive benefit from control over firms. This paper investigates an alternative mechanism through which politicians may benefit electorally from connected firms, examining sugar mills in India. I find evidence of embezzlement in politically controlled mills during election years, reflected in lower prices paid to farmers for cane. This result complements the literature on political cycles by demonstrating how campaign funds are raised rather than used. Politicians may recompense farmers upon getting elected, possibly explaining how they can get away with pilferage.
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Lobbying Coalitions and Government Policy Change: An Analysis of Federal Agency Rulemaking
David Nelson & Susan Webb Yackee
Journal of Politics, April 2012, Pages 339-353
Abstract:
Coalition lobbying is one of the most frequently employed influence tactics used by interest groups today. Yet, surprisingly, the existing literature measuring its policy effects finds either no relationship or a negative association between coalition lobbying and policy change. We theorize the conditions under which coalition lobbying will influence policy and then test for its policy effects. We expect greater influence when there is consensus across the messages sent from coalitions and when coalitions are larger and mobilize new participants. Using a multilevel model, we assess the argument with survey data from lobbying entities and a content analysis of regulations promulgated by seven U.S. federal agencies. In contrast to the existing literature measuring policy effects, we find evidence that coalition participants hold important influence during regulatory policymaking. We also demonstrate that both consensus and coalition makeup are critical factors for policy change. These findings suggest that groups employing coalition lobbying - under certain conditions - can, and do, affect the content of government policy outputs.
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Claudine Desrieux, Eshien Chong & Stéphane Saussier
Journal of Economic Behavior & Organization, forthcoming
Abstract:
French municipalities often contract out the provision of local public services to private companies, and regularly choose the same private operator for a range of different services. We develop a model of relational contracts that shows how this strategy may lead to better performance at lower cost for public authorities. We test the implication of our model using an original database of the contractual choices made by 5000 French local public authorities in the years 2001, 2004 and 2008.
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School choice with Chinese characteristics
Xiaoxin Wu
Comparative Education, forthcoming
Abstract:
This paper explores the major characteristics of school choice in the Chinese context. It highlights the involvement of cultural and economic capital, such as choice fees, donations, prize-winning certificates and awards in gaining school admission, as well as the use of social capital in the form of guanxi. The requirement for these resources in order to be successful in the positional competition for admission to key schools has greatly advantaged children from middle class families. Schools and local governments cash in on school choice fever in order to obtain significant economic returns. The current school choice process creates winners among some of the parties involved: school places for selected students, and additional funds for schools and local governments. However, the practice exacerbates the educational inequality that already exists in society.
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Between Party, Parents and Peers: The quandaries of two young Chinese Party members in Beijing
Susanne Bregnbaek
Third World Quarterly, April 2012, Pages 735-750
Abstract:
This article explores the lived contradictions entailed in being a young member of the Chinese Communist Party (CCP) today. The focus is on how political and existential issues intersect. It explores party membership as a strategy for personal mobility among Beijing elite university students by providing an ethnographic account of the quandaries of two young CCP members. Even though one student is of rural origin and the other has an urban elite background, in both cases party membership has been pursued as a strategy for opening paths to the future and tied to a quest for self-development rather than a matter of wishing to make sacrifices for the country. The article focuses on how the two students' efforts play out differently. At the same time it is argued that a sense of moral and existential ambiguity goes hand in hand with both of their party membership strategies, leading to an experience of division.
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Bureaucratic Effectiveness and Influence in the Legislature
Jill Nicholson-Crotty & Susan Miller
Journal of Public Administration Research and Theory, April 2012, Pages 347-371
Abstract:
An extensive literature explores the correlates of bureaucratic influence in the implementation of public policy. Considerably less work, however, has investigated the conditions under which bureaucratic actors influence legislative outcomes. In this article, we develop the argument that effectiveness should be a key determinant of bureaucratic influence in the legislative process and identify a set of institutional characteristics that may facilitate or constrain this relationship. We test these expectations in an analysis of legislator perceptions of bureaucratic influence over legislative outcomes in the 50 US states. The results suggest that the impact of bureaucratic effectiveness on the influence of the bureaucracy over legislative outcomes is greater in states with legislative term limits, united governments, and fragmented executive branches.
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Form of Government Still Matters: Fostering Innovation in U.S. Municipal Governments
Kimberly Nelson & James Svara
American Review of Public Administration, May 2012, Pages 257-281
Abstract:
Using data on the adoption of e-government, reinventing government, and strategic practices, and the Nelson and Svara (2010) typology of municipal government form, the authors investigate the characteristics of municipal governments that are related to the implementation of innovative practices. The authors find that higher innovation rates are associated with council-manager governments - both with and without an elected mayor, higher population, greater growth, lower unemployment, sunbelt location, and higher population density. Controlling for all other variables, form of government (and variations within form) account for the greatest explanation of the adoption of innovative practices in municipalities. The authors conclude that form of government remains an important variable to consider when investigating local government management and performance.
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Eric Welch
International Review of Administrative Sciences, March 2012, Pages 93-115
Abstract:
The relationship between transparency and participation of government is not well articulated in the literature. Transparency provides stakeholders with knowledge about the processes, structures and products of government. Participation refers to the quantity, quality and diversity of input of stakeholders into government decision-making. Greater transparency and participation are often considered to operate side by side. However, in the Internet age the change in the magnitude of information disclosure may outweigh the change in the level of participative government. This article uses data from a 2010 national survey of five US local government agencies to test hypotheses about the relationship between transparency and participation and the factors that affect them. Findings show that participation is positively associated with transparency, but transparency does not lead to participation. In addition, organizations that are under stronger influence from external stakeholders report higher levels of participation but in some cases higher levels of external influence dampen transparency.