Ceteris paribus

Abstract: This chapter aims to develop one of perhaps multiple specifications of embeddedness, a concept that has been used to refer broadly to the contingent nature of economic action with respect to cognition, social structure, institutions, and culture. Research on embeddedness is an exciting area in sociology and economics because it advances understanding of how social structure affects economic life. The chapter addresses propositions about the operation and outcomes of interfirm networks that are guided implicitly by ceteris paribus assumptions. While economies of time due to embeddedness have obvious benefits for the individual firm, they also have important implications for allocative efficiency and the determination of prices. Under the conditions, social processes that increase integration combine with resource dependency problems to increase the vulnerability of networked organizations. The level of investment in an economy promotes positive changes in productivity, standards of living, mobility, and wealth generation.

Abstract: This paper studies the pattern of allocation of foreign aid from various donors to receiving countries. We find considerable evidence that the direction of foreign aid is dictated by political and strategic considerations, much more than by the economic needs and policy performance of the recipients. Colonial past and political alliances are the major determinants of foreign aid. At the margin, however, countries that democratize receive more aid, ceteris paribus. While foreign aid flows respond more to political variables, foreign direct investments are more sensitive to economic incentives, particularly property rights in the receiving countries. We also uncover significant differences in the behavior of different donors.

Abstract: 1. INTRODUCTION Most organizations are governed by a board of directors. In fact, having a board is one of the legal requirements for incorporation. Many nonincorporated entities also have a governing board of some sort, such as a state university's board of regents. Given the myriad boards in place today, it is reasonable to ask, Why do they exist? What do they do? Can they be "improved"? These questions are at the heart of governance and, to a certain extent, management. As such, they have motivated much of the research on this topic. This paper surveys the research on boards of directors in the economics and finance literature. Boards of directors are an economic institution that, in theory, helps to solve the agency problems inherent in managing an organization. Although boards satisfy numerous regulatory requirements, their economic function is determined by the organizational problems they help to address. Yet formal economic theory on boards has been quite limited. For example, the characteristics of agency problems that could lead to boards being the equilibrium solution have not yet been specified. Similarly, the conditions under which regulation of boards will lead to improvements are unknown. Despite the absence of formal theory, we have a strong intuitive sense of the problems facing boards. A major conflict within the boardroom is between the CEO and the directors. The CEO has incentives to "capture" the board, so as to ensure that he can keep his job and increase the other benefits he derives from being CEO. Directors have incentives to maintain their independence, to monitor the CEO, and to replace the CEO if his performance is poor. To some extent, the vacuum in formal theory has been filled by empirical work on boards. The "cost" associated with this approach, however, is that little of the empirical work on boards has been motivated by formal theory. Rather, it has sought to answer one of three questions: 1. How do board characteristics such as composition or size affect profitability? 2. How do board characteristics affect the observable actions of the board? 3. What factors affect the makeup of boards and how do they evolve over time? A key issue in this empirical work is how to proxy for the board's degree of independence from the CEO. Much of this work starts from the sometimes implicit assumption that observable board characteristics such as size or composition are related to the level of board independence. (1) Research thus far has established a number of empirical regularities. First, board composition, as measured by the insider-outsider ratio, (2) is not correlated with firm performance. (3) However, the number of directors on a firm's board is negatively related to the firm's financial performance. Second, board actions do appear to be related to board characteristics. Firms with higher proportions of outside directors and smaller boards tend to make arguably better--or at least different--decisions concerning acquisitions, poison pills, executive compensation, and CEO replacement, ceteris paribus. Finally, boards appear to evolve over time depending on the bargaining position of the CEO relative to that of the existing directors. Firm performance, CEO turnover, and changes in ownership structure appear to be important factors affecting changes to boards. Two important issues complicate empirical work on boards of directors, as well as most other empirical work on governance. First, almost all the variables of interest are endogenous. The usual problems of joint endogeneity therefore plague these studies. For instance, firm performance is both a result of the actions of previous directors and itself a factor that potentially influences the choice of subsequent directors. Studies of boards often neglect this issue and thus obtain results that are hard to interpret. Second, many empirical results on governance can be interpreted as either equilibrium or out-of-equilibrium phenomena. …

Abstract: This paper studies the pattern of allocation of foreign aid from various donors to receiving countries. We find considerable evidence that the direction of foreign aid is dictated as much by political and strategic considerations, as by the economic needs and policy performance of the recipients. Colonial past and political alliances are major determinants of foreign aid. At the margin, however, countries that democratize receive more aid, ceteris paribus. While foreign aid flows respond to political variables, foreign direct investments are more sensitive to economic incentives, particularly “good policies” and protection of property rights in the receiving countries. We also uncover significant differences in the behavior of different donors.

Abstract: Critics of foreign aid programs have long argued that poverty reflects government failure. In this paper I analyze the effectiveness of foreign aid programs to gain insights into political regimes in aid recipient countries. My analytical framework shows how three stylized political/economic regimes labeled egalitarian, elitist and laissez-faire would use foreign aid. I then test reduced form equations using data on nonmilitary aid flows to 96 countries. I find that models of elitist political regimes best predict the impact of foreign aid. Aid does not significantly increase investment and growth, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government. I also find that the impact of aid does not vary according to whether recipient governments are liberal democracies or highly repressive. But liberal political regimes and democracies, ceteris paribus, have on average 30% lower infant mortality than the least free regimes. This may be due to greater empowerment of the poor under liberal regimes eve though the political elite continues to receive the benefits of aid programs. An implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs.