Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model.
Is the political support for welfare policy higher or lower in less egalitarian societies? We answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner. When voters have both redistributive and insurance motives for supporting welfare spending, the effect of inequality depends on how benefits are targeted. Greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings. With endogenous targeting, support for benefits to those without earnings declines as inequality increases, whereas support for aggregate spending is a V-shaped function of inequality. Statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model. (American Political Science Review / FUB)
Der Leistungsvergleich verschiedener Ansätze zur Lohnpolitik wird vor allem auch aufgrund der politischen Brisanz heftig und kontrovers diskutiert. Auf der einen Seite stehen die sozialdemokratischen Parteien und die Gewerkschaften, die die Koordinierung von Löhnen durch die verschiedenen Industriezweige und Firmen hindurch befürworten, im Glauben, daß das Wirtschaftswachstum am optimalsten durch zentralisierte Kooperation und Verhandlung von Arbeitgebern und Arbeitnehmern erfolgt. Auf der anderen Seite stehen die konservativen Parteien und Arbeitnehmerverbände, die vom Arbeitsmarkt Wettbewerb und Lohnflexibilität verlangen. Im vorliegenden Beitrag werden in diesem Zusammenhang ökonomische Theorien herangezogen. Ein Überblick über die theoretische Literatur soll Aufschluß über die verschiedenen Ansätze zu Lohnverhandlungen, zu Wirtschaftswachstum und zu Arbeitslosigkeit geben. Im zweiten Teil wird erörtert, ob die Verhandlungsführung und die gewerkschaftliche Beeinflussung der Lohnpolitik Auswirkungen auf die ökonomische Leistung haben. Im dritten Teil wird der Standpunkt der Arbeitgeber betrachtet, wobei gezeigt wird, wie das Verhandlungslevel die Lohnvorgaben der Arbeitgeber verändern kann. Wie die Verhandlungsführung von ökonomischen Auswirkungen beeinflußt werden kann, nämlich indem Lohnforderung und -entscheidung in Abhängigkeit von der Veränderung auf dem Arbeitmarkt und bei der Investition sich ebenfalls verändern, wird abschließend verdeutlicht. (psz)
We argue that economic inequality harms social provisions for the poor, but that higher political competition can mitigate this effect. We test this hypothesis using a large redistricting of electoral boundaries in India and find that higher inequality causes more post-neonatal infant deaths, but only when there is weak political competition. We further show that government health centers located in constituencies with low political competition and high inequality are disfavored, indicating that the effect on mortality operates via changes in public provision. Finally, we show that the same mechanisms are at play in the implementation of the MGNREGA employment program.
We show that the recent rise in Afghan opium production is caused by violent conflicts. Violence destroys roads and irrigation, crucial to alternative crops, and weakens local incentives to rebuild infrastructure and enforce law and order. Exploiting a unique data set, we show that Western hostile casualties, our proxy for conflict, have strong impact on subsequent local opium production. This proxy is shown to be exogenous to opium. We exploit the discontinuity at the end of the planting season: Conflicts have strong effects before and no effect after planting, assuring causality. Effects are strongest where government law enforcement is weak.
In many countries extreme poverty is unnecessary. Yet it persists. We propose a simple index, denoted the Miser index, to measure the extent to which societies have poverty in the midst of affluence. It builds on the generalized Lorenz curve, but can also be seen as a measure of polarization between the rich and the poor. We calculate the index for a number of developing and emerging economies and rank them according to their revealed miserliness. We also identify important correlates of the Miser index. Countries that score high on the index tend to be socially fractionalized, bureaucratically inefficient, and politically corrupt. They provide their citizens with a low level of health care and education. Democracy and high growth rates do not moderate miserliness. Finally, considering the world as a single entity, we find a dramatic rise in global miserliness over the last 30 years.
Unproductive enterprises that feed on productive businesses, are rampant in developing countries. These parasitic enterprises take divergent forms, some headed by violent bandits and brutal mafia bosses, others by organized middlemen or smart political insiders. All of them seem to have the profit motive in common. A consequence of parasitic enterprises is that societies may be locked into a self enforcing configuration of beliefs and practices that result in persistent poverty. In some instances the parasites are former youth gangs or rebel groups that are transformed to criminal enterprises feeding on private businesses (Collier 2000). Such bandits not only extort and control small-scale informal enterprises, street sellers and sweat shops, but the most professional among the plunderers prey on large-scale modern firms. One case in point is the lucrative businesses of kidnapping and extortion in Colombia, where guerrillas collect more than hundred million US dollars per year only from the oil industry alone (Hunter, 1996). Other parasitic enterprises act like a Mafia, providing protection, enforcing contracts, and mediating disputes for money. These enterprises apply force on a commercial basis to collect debt and enforce business contracts. "Problem solving" that normally belongs to the realm of the state is undertaken by violent entrepreneurs and their gangs, where the targets have to pay tributes to avoid damages. Even though these predatory forms of illegal activities can be found in industrialized countries – with the Sicilian and the We thank Kaushik Basu for productive discussions. We have also benefitted from useful comments by Sam Bowles and Karla Hoff. We are grateful for support from the Norwegian Research Council. 1 Parasites 2 American Mafia the best-known examples– they are more prevalent and more burdensome in developing countries and in the transition economies of Eastern Europe and the former Soviet Union. In the transition countries the institutional vacuum created by the collapse of communism has opened the scene for extortion by such mafia-like parasites. Their activities belong to the growing shadow economy (Campos 2000). One example is private enforcement of business contracts, by threat of violence from criminal gangs, that became routine in the Russian business world in the 1990s. As Volkov observed, "[b]efore signing formal business contracts, companies acquire information on each other's enforcement partners (whom do you work with?)"(Volkov 1999 p.746). Such criminal gangs can obtain a considerable influence over private businesses. According to the Russian Ministry of Internal Affairs, criminal gangs in 1994 controlled 40,000 Russian businesses (Volkov 1999). Parasitic enterprises can also be run by middlemen who organize marketing boards with substantial monopsony power, or by wealthy land-owners who provide credit at exploitative interest rates. Political insiders set up their own parasitic enterprises that private sector companies have to consult and remunerate in order to have certain contracts signed. These activities, sometimes called straddling, are common in Africa. In Kenya, for example, president Moi allowed extensive straddling among politicians and bureaucrats in exchange for loyalty to the government (Bates 1983, Bigsten and Moene 1996). Finally, parasites are not always private enterprises, but can be found as corrupt politicians and bureaucrats who collect bribes and use their positions for own private benefit. All these kinds of parasitic rent appropriation activities that are directed towards private businesses flourish in the absence of a state that effectively protects property rights, and enforces contracts. Thus parasitic rent appropriation is different from regular rent-seeking that captures activities directed towards an active state undertaking regulations that private businesses wish to avoid or benefit from. While regular rent seeking distort political decisions via wasteful influence activities, parasitic rent appropriation challenges the state's monopoly of taxation, protection and legitimate violence. In this paper we highlight some of the causes and consequences of these parasitic behaviors. Our basic claim is based on the premise that entrepreneurs of both productive and parasitic enterprises to some extent are drawn from the same limited pool of entrepreneurs. Parasites 3 When this is the case, the rise of parasitic profit opportunities may cause economic stagnation and underdevelopment that in turn enhance the profitability of parasitic enterprises relative to productive enterprises. Thus parasitic rent appropriation may induce stagnation, while stagnation may induce parasitic activities. Together the two links can lead developing economies into a poverty trap. In order to study the consequences of parasitic profit opportunities, we embed parasitic activities within a big-push model of industrialization. Parasitic activities compete for scarce entrepreneurial resources, as in the seminal papers on the misallocation of talent to unproductive activities by Usher (1987), Baumol (1990), Murphy, Shleifer, and Vishny (1991 and 1993), and Acemoglu (1995).1 First, however we clarify what we mean by a poverty trap and how it is related to the concepts of strategic complementarity.
When the state fails to supply basic security and protection of property, violent entrepreneurs not only seize the opportunity of plundering, but some also enter the protection business and provide protection against plunderers. This uncoordinated division of labor is advantageous for the entire group of violent entrepreneurs. Hence, in weak states a situation may arise where a large number of violent entrepreneurs can operate side by side as plunderers and protectors squeezing the producers from both sides. The problem reached new levels at the end of the Cold War. As military forces were demobilized without civilian jobs to go to, many countries got an oversupply of qualified violent people for crime, warfare, and private protection. In this `market for extortion' the entry of new violent entrepreneurs enhances the profitability of them all. The supply of violence creates its own demand - an externality of violence that is detrimental to the development in poor countries.
