Showing papers by "London School of Economics and Political Science published in 2005"

A Theory of Friendly Boards

Abstract: This paper analyzes the consequences of the board's dual role as an advisor as well as a monitor of management. As a result of this dual role, the CEO faces a trade-off in disclosing information to the board. On the one hand, if he reveals his information, he gets better advice. On the other hand, a more informed board will monitor him more intensively. Since an independent board is a tougher monitor, the CEO may be reluctant to share information with it. Thus, our model shows that management-friendly boards can be optimal. Using the insights from the model, we analyze the differences between a sole board system, such as in the United States, and the dual board system, as in various countries in Europe. We highlight several policy implications of our analysis.

New public management is dead. Long live digital-era governance

Abstract: The "new public management" (NPM) wave in public sector organizational change was founded on themes of disaggregation, competition, and incentivization. Although its effects are still working through in countries new to NPM, this wave has now largely stalled or been reversed in some key "leading-edge" countries. This ebbing chiefly reflects the cumulation of adverse indirect effects on citizens' capacities for solving social problems because NPM has radically increased institutional and policy complexity. The character of the post-NPM regime is currently being formed. We set out the case that a range of connected and information technology-centered changes will be critical for the current and next wave of change, and we focus on themes of reintegration, needs-based holism, and digitization changes. The overall movement incorporating these new shifts is toward "digital-era governance" (DEG), which involves reintegrating functions into the governmental sphere, adopting holistic and needs-oriented structures, and progressing digitalization of administrative processes. DEG offers a perhaps unique opportunity to create self-sustaining change, in a broad range of closely connected technological, organizational, cultural, and social effects. But there are alternative scenarios as to how far DEG will be recognized as a coherent phenomenon and implemented successfully.

Uncertainty in predictions of the climate response to rising levels of greenhouse gases.

Abstract: In the climateprediction.net project, thousands of individuals have volunteered spare computing capacity on their PCs to help quantify uncertainty in the way our climate responds to increasing levels of greenhouse gases. By running a state-of-the-art climate model thousands of times, it is possible to find out how the model responds to slight changes in the approximations of physical processes that cannot be calculated explicitly. The first batch of results has now been analysed, and surface temperature changes in simulations that capture the climate realistically are ranging from below 2 °C to more than 11 °C. These represent the possible long-term change, averaged over the whole planet, as a result of doubling the levels of atmospheric carbon dioxide in the model. This is the first time that complex models have been found with such a wide range of responses. Their existence will help in quantifying the risks associated with climate change on a regional level. The range of possibilities for future climate evolution1,2,3 needs to be taken into account when planning climate change mitigation and adaptation strategies. This requires ensembles of multi-decadal simulations to assess both chaotic climate variability and model response uncertainty4,5,6,7,8,9. Statistical estimates of model response uncertainty, based on observations of recent climate change10,11,12,13, admit climate sensitivities—defined as the equilibrium response of global mean temperature to doubling levels of atmospheric carbon dioxide—substantially greater than 5 K. But such strong responses are not used in ranges for future climate change14 because they have not been seen in general circulation models. Here we present results from the ‘climateprediction.net’ experiment, the first multi-thousand-member grand ensemble of simulations using a general circulation model and thereby explicitly resolving regional details15,16,17,18,19,20,21. We find model versions as realistic as other state-of-the-art climate models but with climate sensitivities ranging from less than 2 K to more than 11 K. Models with such extreme sensitivities are critical for the study of the full range of possible responses of the climate system to rising greenhouse gas levels, and for assessing the risks associated with specific targets for stabilizing these levels.

Identifying technology spillovers and product market rivalry

Abstract: Support for many R&D and technology policies relies on empirical evidence that R&D ‘spills over’ between firms. But there are two countervailing R&D spillovers: positive effects from technology spillovers and negative effects from business stealing by product market rivals. We develop a general framework showing that technology and product market spillovers have testable implications for a range of performance indicators, and exploit these using distinct measures of a firm’s position in technology space and product market space. We show using panel data on US firms between 1981 and 2001 that both technology and product market spillovers operate, but that net social returns are several times larger than private returns. The spillover effects are also revealed when we analyze three high-tech sectors in detail - pharmaceuticals, computer hardware and telecommunication equipment. Using the model we evaluate three R&D subsidy policies and show that the typical focus of support for small and medium firms may be misplaced.

Unemployment in the OECD Since the 1960s. What Do We Know

Abstract: This paper presents an empirical analysis of unemployment patterns in the OECD countries from the 1960s to the 1990s. Our results indicate the following. First, broad movements in unemployment across the OECD can be explained by shifts in labour market institutions. Second, interactions between average values of these institutions and shocks make no significant additional contribution to our understanding of OECD unemployment changes. Explanations (of high unemployment) based solely on institutions also run however into a major empirical problem: many of these institutions were already present when unemployment was low …. Thus, while labour market institutions can potentially explain cross country differences today, they do not appear able to explain the general evolution of unemployment over time.

Do rural banks matter? Evidence from the indian social banking experiment

Abstract: Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse is true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.

Testing for localization using micro-geographic data

Abstract: To study the detailed location patterns of industries, and particularly the tendency for industries to cluster relative to overall manufacturing, we develop distance-based tests of localisation. In contrast to previous studies, our approach allows us to assess the statistical significance of departures from randomness. In addition, we treat space as continuous instead of using an arbitrary collection of geographical units. This avoids problems relating to scale and borders. We apply these tests to an exhaustive UK data set. For four-digit industries, we find that (i) 52% of them are localised at a 5% confidence level, (ii) localisation mostly takes place at small scales below 50 kilometres, (iii) the degree of localisation is very skewed, and (iv) industries follow broad sectoral patterns with respect to localisation. Depending on the industry, smaller establishments can be the main drivers of both localisation and dispersion. Three-digit sectors show similar patterns of localisation at small scales as well as a tendency to localise at medium scales.

Liquidity Risk and Contagion

Abstract: This paper explores liquidity risk in a system of interconnected financial institutions when these institutions are subject to regulatory solvency constraints and mark their assets to market. When the market's demand for illiquid assets is less than perfectly elastic, sales by distressed institutions depress the market prices of such assets. Marking to market of the asset book can induce a further round of endogenously generated sales of assets, depressing prices further and inducing further sales. Contagious failures can result from small shocks. We investigate the theoretical basis for contagious failures and quantify them through simulation exercises. Liquidity requirements on institutions can be as effective as capital requirements in forestalling contagious failures. (JEL: G21, G28)

A history of the federal reserve

Abstract: Allan H. Meltzer's critically acclaimed history of the Federal Reserve is the most ambitious, most intensive, and most revealing investigation of the subject ever conducted. Its first volume, published to widespread critical acclaim, spanned the period from the institution's founding in 1913 to the restoration of its independence in 1951. Book 1 of the two-part second volume chronicles the evolution and development of the Federal Reserve from the Federal Reserve Accord in 1951 to the first phase of the Great Inflation in the 1960s, revealing the inner workings of the Fed during a period of rapid and extensive change. Book 2 chronicles the evolution and development of the Federal Reserve from the Nixon administration to the mid-1980s, when the Great Inflation ended.

Exchange Relationships: Examining Psychological Contracts and Perceived Organizational Support.

Abstract: The authors surveyed 347 public sector employees on 4 measurement occasions to investigate the conceptual distinctiveness of the psychological contract and perceived organizational support (POS) and how they are associated over time. Results support the distinctiveness of the 2 concepts. In terms of their interrelationships over time, by drawing on psychological contract theory the authors found little support for a reciprocal relationship between POS and psychological contract fulfillment. Under an alternative set of hypotheses, by drawing on organizational support theory and by separating psychological contract fulfillment into its 2 components (perceived employer obligations and inducements), the authors found that perceived employer inducements were positively related to POS, which, in turn, was negatively related to perceived employer obligations. The results suggest that POS and the components of psychological contract fulfillment are more important in predicting organizational citizenship behavior than psychological contract fulfillment.

The Law and Economics of Self-Dealing

Abstract: We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. This theoretically-grounded index predicts a variety of stock market outcomes, and generally works better than the commonly used index of anti-director rights.

Social Preferences and the Response to Incentives: Evidence from Personnel Data

Abstract: We present evidence on whether workers have social preferences by comparing workers' productivity under relative incentives, where individual effort imposes a negative externality on others, with their productivity under piece rates, where it does not. We find that the productivity of the average worker is at least 50 percent higher under piece rates than under relative incentives. We show that this is due to workers partially internalizing the negative externality their effort imposes on others under relative incentives, especially when working alongside their friends. Under piece rates, the relationship among workers does not affect productivity. Further analysis reveals that workers internalize the externality only when they can monitor others and be monitored. This rules out pure altruism as the underlying motive of workers' behavior.

The Costs of Remoteness: Evidence from German Division and Reunification

Abstract: This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence of the importance of market access for economic development. In line with a standard new economic geography model, we find that following division cities in West Germany that were close to the new border between East and West Germany experienced a substantial decline in population growth relative to other West German cities. We provide several pieces of evidence that the decline of the border cities can be entirely accounted for by their loss in market access and is neither driven by differences in industrial structure nor differences in the degree of war related destruction. Finally, we also find some first evidence of a recovery of the border cities after the reunification of East and West Germany.

Democracy and education spending in Africa

Abstract: While it is widely believed that electoral competition influences public spending decisions, there has been relatively little effort to examine how recent democratization in the developing world has resulted in changes in basic service provision. There have been even fewer attempts to investigate whether democracy matters for public spending in the poorest developing countries, where “weak institutions” may mean that the formal adoption of electoral competition has little effect on policy. In this article I confront these questions directly, asking whether the shift to multiparty competition in African countries has resulted in increased spending on primary education. I develop an argument, illustrated with a game-theoretic model, which suggests that the need to obtain an electoral majority may have prompted African governments to spend more on education and to prioritize primary schools over universities within the education budget. I test three propositions from the model using panel data on electoral competition and education spending in African countries. I find clear evidence that democratically elected African governments have spent more on primary education, while spending on universities appears unaffected by democratization.

Review of "The labyrinths of information: Challenging the wisdoms of systems" by Claudio Ciborra, Oxford University Press, Oxford, UK, 2002

Abstract: 1. Invitation 2. Krisis - judging methods 3. Bricolage - improvisation, hacking, patching 4. Gestell - the power of infrastructures 5. Derive - drift and deviation 6. Xenia - hosting an innovation 7. Shih - architecture and action 8. Kairos (and Affectio) - seizing the opportunity (and moods and mental states) Methodological Appendix (Odos) - my chosen road

Seeing the State: Governance and Governmentality in India

Abstract: Part I. The State and the Poor: 1. Seeing the state 2. Technologies of rule and the war on poverty Part II. The Everyday State and Society: 3. Meeting the state 4. Participation 5. Governance 6. Political society Part III. The Poor and the State: 7. Protesting the state 8. Postcolonialism, development studies and spaces of empowerment 9. Postscript: development ethics and the ethics of critique.

The wrong kind of transparency

Abstract: In a model of career concerns for experts, when is the principal hurt from observing more information about her agent? This paper introduces a distinction between information on the consequence of the agent's action and information directly on the agent's action. It is the latter kind that can hurt the principal by engendering conformism, which worsens both discipline and sorting. The paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results are used to interpret existing disclosure policies in politics, corporate governance, and delegated portfolio management.

Body Projects and the Regulation of Normative Masculinity

Abstract: Drawing on interviews with 140 young British males, this paper explores the ways in which men talk about their own bodies and bodily practices, and those of other men. The specific focus of interest is a variety of body modification practices, including working out (at a gym) tattooing, piercing and cosmetic surgery. We want to argue, however, that the significance of this analysis extends beyond the topic of body modification to a broader set of issues concerned with the nature of men’s embodied identities. In discussing the appearance of their bodies, the men we interviewed talked less about muscle and skin than about their own selves located within particular social, cultural and moral universes. The surfaces of their bodies were, as Mike Featherstone (1991) has argued, charged primarily with ‘identity functions’, allowing men to establish a place for themselves in contemporary society. Using a social psychological approach which can be characterised as a discursive analysis (Henwood, Gill & McLean, 1999; Lupton, 1998), this paper makes connections between men’s private feelings and bodily practices, and broader social and cultural trends and relations. It shows that in talking about seemingly trivial questions such as whether to have one’s nose pierced or whether to join a gym, men are actively engaged in constructing and policing appropriate masculine behaviours and identities; above all, in regulating normative masculinity. We identify five key discourses or ‘interpretive repertoires’ (Wetherell & Potter, 1992) which together construct the meanings for these men of attempts to modify the appearance of the body. The five discourses or repertoires were focused on the themes of individualism and ‘being different’; libertarianism and the autonomous body; unselfconsciousness and the rejection of vanity; a notion of the ‘well-balanced’ and unobsessional self; and self-respect and the morally accountable body. Our analysis lends support to the claim that the body has become a new (identity) project in high/late/postmodernity (e.g. Shilling, 1993; Featherstone, 1991), but shows how fraught with difficulties this project is for young men who must simultaneously work on and discipline their bodies while disavowing any (inappropriate) interest in their own appearance. The analysis highlights the pervasive individualism of young men’s discourses, and the absence of alternative ways of making sense of embodied experiences.

Can Mutual Fund 'Stars' Really Pick Stocks? New Evidence from a Bootstrap Analysis

Abstract: We apply a new bootstrap statistical technique to examine the performance of the U.S. open-end, domestic-equity mutual fund industry over the 1975 to 2002 period. This bootstrap approach is necessary because the cross-section of mutual fund alphas has a complex, non-normal distribution – due to heterogeneous risk-taking by funds as well as non-normalities in individual fund alpha distributions. Our bootstrap approach reveals findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs; moreover, the superior alphas of these managers persist.

Consistent Testing for Stochastic Dominance under General Sampling Schemes

Abstract: We propose a procedure for estimating the critical values of the extended Kolmogorov‐Smirnov tests of Stochastic Dominance of arbitrary order in the general K -prospect case. We allow for the observations to be serially dependent and, for the first time, we can accommodate general dependence amongst the prospects which are to be ranked. Also, the prospects may be the residuals from certain conditional models, opening the way for conditional ranking. We also propose a test of Prospect Stochastic Dominance. Our method is based on subsampling and we show that the resulting tests are consistent and powerful against some N 1/2 local alternatives. We also propose some heuristic methods for selecting subsample size and demonstrate in simulations that they perform reasonably. We describe an alternative method for obtaining critical values based on recentring the test statistic and using full-sample bootstrap methods. We compare the two methods in theory and in practice.

Spatial Inequality and Development

Abstract: 1. Introduction 2. Regional Output Differences in International Perspective 3. Are Neighbors Equal? Estimating Local Inequality in Three Developing Countries 4. Market Size, Linkages and Productivity: A Study of Japanese Regions 5. Externalities in Rural Development: Evidence for China 6. Opening the Convergence Black Box: Measurement Problems and Demographic Aspects 7. Adverse Geography and Differences in Welfare in Peru 8. How Responsive is Poverty to Growth? A Regional Analysis of Poverty, Inequality and Growth in Indonesia, 1984-1999 9. Reforms, Remoteness and Risk in Africa: Understanding Inequality and Poverty During the 1990s 10. Economic Polarization Through Trade: Trade Liberalization and Regional Growth in Mexico 11. International Trade, Location and Wage inequality in China 12. Spatial Inequality for Manufacturing Wages in Five African Countries 13. Regional Poverty and Income Inequality in Central and Eastern Europe: Evidence from the Luxembourg Income Study 14. Quo Vadis: Inequality and Poverty Dynamics Across Russian Regions

Power to the Parties: Cohesion and Competition in the European Parliament, 1979–2001

Abstract: How cohesive are political parties in the European Parliament? What coalitions form and why? The answers to these questions are central for understanding the impact of the European Parliament on European Union policies. These questions are also central in the study of legislative behaviour in general. We collected the total population of roll-call votes in the European Parliament, from the first elections in 1979 to the end of 2001 (over 11,500 votes). The data show growing party cohesion despite growing internal national and ideological diversity within the European party groups. We also find that the distance between parties on the left-right dimension is the strongest predictor of coalition patterns. We conclude that increased power of the European Parliament has meant increased power for the transnational parties, via increased internal party cohesion and inter-party competition.

Estimating the tail-dependence coefficient: Properties and pitfalls

Abstract: The concept of tail dependence describes the amount of dependence in the lower-left-quadrant tail or upper-right-quadrant tail of a bivariate distribution. A common measure of tail dependence is given by the so-called tail-dependence coefficient. This paper surveys various estimators for the tail-dependence coefficient within a parametric, semiparametric, and nonparametric framework. Further, a detailed simulation study is provided which compares and illustrates the advantages and disadvantages of the estimators.

Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment

Abstract: We examine how credit constraints affect the cyclical behavior of productivity-enhancing investment and thereby volatility and growth. We first develop a simple growth model where firms engage in two types of investment: a short-term one and a long-term productivity-enhancing one. Because it takes longer to complete, long-term investment has a relatively less procyclical return but also a higher liquidity risk. Under complete financial markets, long-term investment is countercyclical, thus mitigating volatility. But when firms face tight credit constraints, long-term investment turns procyclical, thus amplifying volatility. Tighter credit therefore leads to both higher aggregate volatility and lower mean growth for a given total investment rate. We next confront the model with a panel of countries over the period 1960-2000 and find that a lower degree of financial development predicts a higher sensitivity of both the composition of investment and mean growth to exogenous shocks, as well as a stronger negative effect of volatility on growth.

"I have an evil child at my house": stigma and HIV/AIDS management in a South African community.

Abstract: We examined the social roots of stigma by means of a case study of HIV/AIDS management among young people in a South African community (drawing from interviews, focus groups, and fieldworker diaries). We highlight the web of representations that sustain stigma, the economic and political contexts within which these representations are constructed, and the way in which they flourish in the institutional contexts of HIV/AIDS interventions.Stigma serves as an effective form of “social psychological policing” by punishing those who have breached unequal power relations of gender, generation, and ethnicity. We outline an agenda for participatory programs that promote critical thinking about stigma’s social roots to stand alongside education and, where possible, legislation as an integral part of antistigma efforts.