Showing papers by "London School of Economics and Political Science published in 2006"

The Log of Gravity

Abstract: Although economists have long been aware of Jensen's inequality, many econometric applications have neglected an important implication of it: the standard practice of interpreting the parameters of log-linearized models estimated by ordinary least squares as elasticities can be highly misleading in the presence of heteroskedasticity. This paper explains why this problem arises and proposes an appropriate estimator. Our criticism to conventional practices and the solution we propose extends to a broad range of economic applications where the equation under study is log-linearized. We develop the argument using one particular illustration, the gravity equation for trade, and apply the proposed technique to provide new estimates of this equation. We find significant differences between estimates obtained with the proposed estimator and those obtained with the traditional method. These discrepancies persist even when the gravity equation takes into account multilateral resistance terms or fixed effects

Modelling asymmetric exchange rate dependence

Abstract: We test for asymmetry in a model of the dependence between the Deutsche mark and the yen, in the sense that a different degree of correlation is exhibited during joint appreciations against the U.S. dollar versus during joint depreciations. We consider an extension of the theory of copulas to allow for conditioning variables, and employ it to construct flexible models of the conditional dependence structure of these exchange rates. We find evidence that the mark‐dollar and yen‐dollar exchange rates are more correlated when they are depreciating against the dollar than when they are appreciating.

Why There is a Democratic Deficit in the EU: A Response to Majone and Moravcsik

Abstract: Giandomenico Majone and Andrew Moravcsik have argued that the EU does not suffer a ‘democratic deficit’. We disagree about one key element: whether a democratic polity requires contestation for political leadership and over policy. This aspect is an essential element of even the ‘thinnest’ theories of democracy, yet is conspicuously absent in the EU.

What's measured is what matters: targets and gaming in the English public health care system

Abstract: In the 2000s, governments in the UK, particularly in England, developed a system of governance of public services that combined targets with an element of terror This has obvious parallels with the Soviet regime, which was initially successful but then collapsed Assumptions underlying governance by targets represent synecdoche (taking a part to stand for a whole); and that problems of measurement and gaming do not matter We examine the robustness of the regime of targets and terror to these assumptions using evidence from the English public health service on reported successes, problems of measurement, and gaming Given this account, we consider the adequacy of current audit arrangements and ways of developing governance by targets in order to counter the problems we have identified

“Electoral Institutions and the Politics of Coalitions: Why Some Democracies Redistribute More than Others”

Abstract: Standard political economy models of redistribution, notably that of Meltzer and Richard (1981), fail to account for the remarkable variance in government redistribution across democracies. We develop a general model of redistribution that explains why some democratic governments are more prone to redistribute than others. We show that the electoral system plays a key role because it shapes the nature of political parties and the composition of governing coalitions, hence redistribution. Our argument implies (1) that center-left governments dominate under PR systems, whereas center-right governments dominate under majoritarian systems; and (2) that PR systems redistribute more than majoritarian systems. We test our argument on panel data for redistribution, government partisanship, and electoral system in advanced democracies. W hy do some countries redistribute more than others? Most work on the politics of redistribution starts from the premise that democratic institutions empower those who stand to benefit from redistribution. The basic logic is succinctly captured in the Meltzer‐Richard (1981) model, where the voter with the median income is also the decisive voter. With a typical right-skewed distribution of income, the median voter will push for redistributive spending up to the point where the benefit of such spending to the median voter is outweighed by the efficiency costs of distortionary taxation. This argument implies that redistibution is much greater in democracies than in nondemocracies (at least of the right-authoritarian variety), and that, among the latter, inegalitarian societies redistribute more than egalitarian ones. There is some evidence to supportthefirstimplication,althoughitisdisputed(see Ross 2005), but most of the variance in redistribution is probably within the same regime type. According to datafromtheLuxembourgIncomeStudy,forexample, the reduction in the poverty rate in United States as a result of taxation and transfers was 13% in 1994, whereas the comparable figure for Sweden was 82% (thepovertyrateisthepercentageofhouseholdsbelow 50% of the median income). To explain this variance, we have to look at political and economic differences

Social Networks and Technology Adoption in Northern Mozambique

Abstract: Despite their potentially strong impact on poverty, agricultural innovations are often adopted slowly. Using a unique household dataset on sunflower adoption in Mozambique, we analyse whether and how individual adoption decisions depend upon the choices of others in the same social networks. Since farmers anticipate that they will share information with others, we expect farmers to be more likely to adopt when they know many other adopters. Dynamic considerations, however, suggest that farmers who know many adopters might strategically delay adoption to free-ride on the information gathered by others. We present empirical evidence that shows that the relationship between the probability of adoption and the number of known adopters is shaped as an inverse-U. In line with information sharing, the network effect is stronger for farmers who report discussing agriculture with others. The data contains information which is needed to ameliorate the identification issues that commonly arise in this context. In particular social networks are precisely identified, and in addition we can control for village heterogeneity and endogenous group formation.

The Competitive Advantage of Sanctioning Institutions

Abstract: Understanding the fundamental patterns and determinants of human cooperation and the maintenance of social order in human societies is a challenge across disciplines. The existing empirical evidence for the higher levels of cooperation when altruistic punishment is present versus when it is absent systematically ignores the institutional competition inherent in human societies. Whether punishment would be deliberately adopted and would similarly enhance cooperation when directly competing with nonpunishment institutions is highly controversial in light of recent findings on the detrimental effects of punishment. We show experimentally that a sanctioning institution is the undisputed winner in a competition with a sanction-free institution. Despite initial aversion, the entire population migrates successively to the sanctioning institution and strongly cooperates, whereas the sanction-free society becomes fully depopulated. The findings demonstrate the competitive advantage of sanctioning institutions and exemplify the emergence and manifestation of social order driven by institutional selection.

The Process of Social Innovation

Abstract: Much of what we now take for granted in social life began as radical innovation. A century ago, few believed that ordinary people could be trusted to drive cars at high speed, the idea of a national health service freely available was seen as absurdly utopian, the concept of “kindergarten” was still considered revolutionary, and only one country had given women the vote. Yet in the interim, these and many other social innovations have progressed from the margins to the mainstream. During some periods in recent history, civil society provided most of the impetus for social innovation (see box, facing page). The great wave of industrialization and urbanization in the nineteenth century was accompanied by an extraordinary upsurge of social enterprise and innovation: mutual self-help, microcredit, building societies, cooperatives, trade unions, reading clubs, and philanthropic business leaders creating model towns and model schools. In nineteenth and early twentieth century Britain, civil society pioneered the most influential new models of childcare, housing, community development and social care. At other times governments have taken the lead in social innovation—for example, in the years after 1945 democratic governments built welfare states, schooling systems, and institutions using methods such as credit banks for farmers and networks of adult education colleges. (This was a period when many came to see civic and charitable organizations as too parochial, paternalist, and inefficient to meet social needs on any scale.) There is every reason to believe that the pace of social innovation will, if anything, accelerate in the coming century. There is certainly more money flowing into NGOs and civil society than ever before. Economies in both developed and (to Geoff Mulgan

Políticas públicas: uma revisão da literatura

Abstract: The article presents a review of the main concepts and models for making and assessment of public policies, seeking to synthesize the state of the art in the field, that is, to map how classic and more recent literature approach the subject. The article also seeks to discuss possibilities for application of distinct streams of neo-institutionalist theories to the assessment of public policies.

Debt Enforcement Around the World

Abstract: We present insolvency practitioners from 88 countries with an identical case of a hotel about to default on its debt, and ask them to describe in detail how debt enforcement against this hotel will proceed in their countries. We use the data on time, cost, and the likely disposition of the assets (preservation as a going concern versus piecemeal sale) to construct a measure of the efficiency of debt enforcement in each country. We identify several characteristics of debt enforcement procedures, such as the structure of appeals and availability of floating charge finance, that influence efficiency. Our measure of efficiency of debt enforcement is strongly correlated with per capita income and legal origin and predicts debt market development across countries. Interestingly, it is also highly correlated with measures of the quality of contract enforcement and public regulation obtained in other studies.

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. A bootstrap approach is necessary because the cross section of mutual fund alphas has a complex nonnormal distribution due to heterogeneous risk-taking by funds as well as nonnormalities in individual fund alpha distributions. Our bootstrap approach uncovers 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.

Handcuffs for the Grabbing Hand? Media Capture and Government Accountability

Abstract: It has long been recognized that the media play an essential role in government accountability. However, even in the absence of censorship, the government may in‡uence news content by maintaining a “cozy” relationship with the media. This paper develops a model of democratic politics in which media capture is endogenous. The model o¤ers insights into the features of the media market that determine the ability of the government to exercise such capture and hence to in‡uence political outcomes.

Causes of Sprawl: A Portrait from Space

Abstract: We study the extent to which U. S. urban development is sprawling and what determines differences in sprawl across space. Using remote-sensing data to track the evolution of land use on a grid of 8.7 billion 30 30 meter cells, we measure sprawl as the amount of undeveloped land surrounding an average urban dwelling. The extent of sprawl remained roughly unchanged between 1976 and 1992, although it varied dramatically across metropolitan areas. Ground water availability, temperate climate, rugged terrain, decentralized employment, early public transport infrastructure, uncertainty about metropolitan growth, and unincorporated land in the urban fringe all increase sprawl.

Multilevel modelling of complex survey data

Abstract: Summary. Multilevel modelling is sometimes used for data from complex surveys involving multistage sampling, unequal sampling probabilities and stratification. We consider generalized linear mixed models and particularly the case of dichotomous responses. A pseudolikelihood approach for accommodating inverse probability weights in multilevel models with an arbitrary number of levels is implemented by using adaptive quadrature. A sandwich estimator is used to obtain standard errors that account for stratification and clustering. When level 1 weights are used that vary between elementary units in clusters, the scaling of the weights becomes important. We point out that not only variance components but also regression coefficients can be severely biased when the response is dichotomous. The pseudolikelihood methodology is applied to complex survey data on reading proficiency from the American sample of the ‘Program for international student assessment’ 2000 study, using the Stata program gllamm which can estimate a wide range of multilevel and latent variable models. Performance of pseudo-maximumlikelihood with different methods for handling level 1 weights is investigated in a Monte Carlo experiment. Pseudo-maximum-likelihood estimators of (conditional) regression coefficients perform well for large cluster sizes but are biased for small cluster sizes. In contrast, estimators of marginal effects perform well in both situations. We conclude that caution must be exercised in pseudo-maximum-likelihood estimation for small cluster sizes when level 1 weights are used.

Calculating QALYs, comparing QALY and DALY calculations

Abstract: Quality-adjusted life years (QALYs) have been used in the assessment of health interventions for three decades. The popularity of the QALY approach has been constantly increasing, although the debate on its theoretical underpinnings and practical implications is still ongoing. Disability-adjusted life years (DALYs), also widely debated, were shaped some 20 years later, broadly within the same conceptual framework but with a number of important differences. This paper provides a comprehensive formulation of QALY calculation methods, offering practical instruments for assessing the impact of health interventions, similar to those made available elsewhere for calculating DALYs. Systematic differences between QALYs and DALYs are explained by reference to two examples: the prevention of tuberculosis and the treatment of bipolar depression. When a health intervention is aimed at preventing or treating a non-fatal disease, the relationship between QALYs gained and DALYs saved depends on age of onset and duration of the disease, as well as the quality of life and disability weights. In the case of a potentially fatal disease, a larger number of factors may determine differences between outcomes assessed with the two metrics. The relative importance of some of these factors is discussed and illustrated graphically in the paper. Understanding similarities and differences between QALYs and DALYs is important to researchers and policy makers, for a sound interpretation of the evidence on the outcomes of health interventions.

The unequal effects of liberalization: evidence from dismantling the license Raj in India

Abstract: This paper investigates whether the effects, on registered manufacturing out-put,employment, entry and investment, of dismantling the 'license raj' - a system of centralcontrols regulating entry and production activity in this sector - vary across Indian stateswith different labor market regulations. The effects are found to be unequal depending onthe institutional environment in which industries are embedded. In particular, followingdelicensing, industries located in states with pro-employer labor market institutions grewmore quickly than those in pro-worker environments. Our results emphasize how localinstitutions matter for whether industry in a region benefits or is harmed by thenationwide delicensing reform.

Do International Human Rights Treaties Improve Respect for Human Rights

Abstract: After the nonbinding Universal Declaration of Human Rights, many global and regional human rights treaties have been concluded. Critics argue that these are unlikely to have made any actual differe...

The Failure of E-Government in Developing Countries: A Literature Review

Abstract: This paper provides an insight to the trends that exist within academic writing in the much talked about area of e-government, and the potential they hold for developing countries. While there is much hype about success stories, the bitter truth that presents itself is that the majority of e-government projects in developing countries fail. After an introduction to Ciborra's (2005) view on e-government, this paper proceeds to use Heeks' (2003) 'archetypes of failure', which are brought about by gaps between the design of the technology itself and reality of the context, to classify some of the current literature. This classification provides a brief overview of themes manifested within this body of knowledge, serving as a useful background for practitioners and implementers of e-government in developing countries.

Climate change and disaster management

Abstract: Climate change, although a natural phenomenon, is accelerated by human activities. Disaster policy response to climate change is dependent on a number of factors, such as readiness to accept the reality of climate change, institutions and capacity, as well as willingness to embed climate change risk assessment and management in development strategies. These conditions do not yet exist universally. A focus that neglects to enhance capacity-building and resilience as a prerequisite for managing climate change risks will, in all likelihood, do little to reduce vulnerability to those risks. Reducing vulnerability is a key aspect of reducing climate change risk. To do so requires a new approach to climate change risk and a change in institutional structures and relationships. A focus on development that neglects to enhance governance and resilience as a prerequisite for managing climate change risks will, in all likelihood, do little to reduce vulnerability to those risks.

A social representation is not a quiet thing: exploring the critical potential of social representations theory.

Abstract: Following Moscovici (1972), this paper addresses the questions: What is the aim of research within a social representations perspective? Is it to support or to criticize the social order? Is it to consolidate or transform it? After a brief overview of social representations theory, I argue that while the theory appears to have the conceptual tools to begin this critical task, there are serious criticisms and points of underdevelopment that need addressing. In order for social representations theory to develop into a rigorously critical theory there are three controversial issues that require clarification. These are (a) the relationship between psychological processes and social practices, (b) the reification and legitimization of different knowledge systems, and (c) agency and resistance in the co-construction of self-identity. After discussing each issue in turn, with illustrations from research on racializing representations, I conclude the paper with a discussion of the role of representations in the ideological construction and contestation of reality.

Women, careers, and work-life preferences

Abstract: There are no sex differences in cognitive ability but enduring sex differences in competitiveness, life goals, the relative emphasis on agency versus connection. Policy-makers’ and feminist emphasis on equal opportunities and family-friendly policies assumes that sex discrimination is the primary source of sex differentials in labour market outcomes—notably the pay gap between men and women. However, some careers and occupations cannot be domesticated—examples are given—and this also poses limits to social engineering. Recent research shows that high levels of female employment and family-friendly policies reduce gender equality in the workforce and produce the glass ceiling. Preference theory is the only theory that can explain these new trends, the continuing pay gap and occupational segregation. Preference theory implies that there are at least three types of career rather than one. However, the differences between men and women's career goals are smaller than sometimes thought.

Estimation of multivariate models for time series of possibly different lengths

Abstract: We consider the problem of estimating parametric multivariate density models when unequal amounts of data are available on each variable. We focus in particular on the case that the unknown parameter vector may be partitioned into elements relating only to a marginal distribution and elements relating to the copula. In such a case we propose using a multi-stage maximum likelihood estimator (MSMLE) based on all available data rather than the usual one-stage maximum likelihood estimator (1SMLE) based only on the overlapping data. We provide conditions under which the MSMLE is not less asymptotically efficient than the 1SMLE, and we examine the small sample efficiency of the estimators via simulations. The analysis in this paper is motivated by a model of the joint distribution of daily Japanese yen–US dollar and euro–US dollar exchange rates. We find significant evidence of time variation in the conditional copula of these exchange rates, and evidence of greater dependence during extreme events than under the normal distribution. Copyright © 2006 John Wiley & Sons, Ltd.

Health and Democracy.

Abstract: In spite of the inexorable march of democracy around the globe, just how democratic institutions a¤ect human well-being is open to debate. The evidence that democracy promotes prosperity is neither strong nor robust. Moreover which aspects of policy making and human well-being are promoted by democracies is still a subject of debate.1 Even if correlations between democracy and outcome measures can be found, there is an overriding di¢ culty of interpreting them as causal e¤ects. Whether democracy matters per se or simply serves as a proxy for societal and political development presents a di¢ cult problem for research in this area. Thinkers such as Lipset (1959) have argued that democracy can thrive only when conditions are right. If this is correct, then becoming democratic may only serve as a proxy for these hard-to-measure cultural and societal preconditions. This paper explores these issues further by reconsidering the link between democracy and health using panel data from a cross-section of countries. The

Dimensions of Politics in the European Parliament

Abstract: In less than 20 years the European Parliament has evolved from a consultative body into the most powerful interstate assembly in history. The European Parliament now has equal legislative power with the governments in many key areas, can amend many lines in the European Union (EU) budget, can veto the governments’ nominee for Commission President, and can sack the Commission. Nevertheless, outside a small group of experts, the only directly elected European body remains relatively unknown. Politics in the EU is different from traditional politics in democratic countries for several reasons. First, the EU is still more a supranational institution than a federal state. Second, there is considerable heterogeneity between the cultures, histories, economic conditions, and national institutions of member states. Therefore, politics in the EU is likely to be more complex and multidimensional than national politics. Understanding the dimensionality of politics in the European Parliament should thus be an important step forward in understanding both the politics of the EU as well as how politics in other interstate assemblies may develop. 1

Trading on Time

Abstract: We determine how time delays affect international trade, using newly-collected World Bank data on the days it takes to move standard cargo from the factory gate to the ship in 126 countries. We estimate a modified gravity equation, controlling for endogeneity and remoteness. On average, each additional day that a product is delayed prior to being shipped reduces trade by at least 1 percent. Put differently, each day is equivalent to a country distancing itself from its trade partners by 70 km on average. Delays have an even greater impact on developing country exports and exports of time-sensitive goods, such as perishable agricultural products. In particular, a day's delay reduces a country's relative exports of time-sensitive to time-insensitive agricultural goods by 6 percent.

GM foods and the misperception of risk perception

Abstract: Public opposition to genetically modified (GM) food and crops is widely interpreted as the result of the public's misperception of the risks. With scientific assessment pointing to no unique risks from GM crops and foods, a strategy of accurate risk communication from trusted sources has been advocated. This is based on the assumption that the benefits of GM crops and foods are self-evident. Informed by the interpretation of some qualitative interviews with lay people, we use data from the Eurobarometer survey on biotechnology to explore the hypothesis that it is not so much the perception of risks as the absence of benefits that is the basis of the widespread rejection of GM foods and crops by the European public. Some respondents perceive both risks and benefits, and may be trading off these attributes along the lines of a rational choice model. However, for others, one attribute—benefit—appears to dominate their judgments: the lexicographic heuristic. For these respondents, their perception of risk is of limited importance in the formation of attitudes toward GM food and crops. The implication is that the absence of perceived benefits from GM foods and crops calls into question the relevance of risk communication strategies for bringing about change in public opinion.

Happiness and public policy: a challenge to the profession

Abstract: The theory behind public economics needs radical reform. It fails to explain the recent history of human welfare and it ignores some of the key findings of modern psychology. Indeed these two failings are intimately linked: it is because the theory ignores psychology that it is unable to explain the facts. The fact is that, despite massive increases in purchasing power, people in the West are no happier than they were fifty years ago. We know this from population surveys and other supporting evidence which I shall review. The most obvious explanations come from three standard findings of the new psychology of happiness. 1 First, a person’s happiness is negatively affected by the incomes of others (a negative externality). Second, a person’s happiness adapts quite rapidly to higher levels of income (a phenomenon of addiction). And third, our tastes are not given ‐ the happiness we get from what we have is largely culturally determined. These findings provide a challenge to the theory and conclusions of public economics, as set out for example in Atkinson and Stiglitz (1980). The challenge to public economics is to incorporate the findings of modern psychology while retaining the rigour of the cost‐benefit framework which is the strength and glory of our subject. 2 In what follows I shall first review the measurement of happiness. Then I shall take the three findings that I discussed one by one, and pursue the policy implications of each of them. I shall end with some overall reflections.