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Abstract:How can we account for the persistence of inefficient policies? To answer that question, this paper focuses on the issue of food and energy subsidies in Egypt. In 2012, over 13 percent of Egyptian GDP – roughly one-third of the overall government spending – was allocated to subsidies of prices of consumer goods including fuels and food. This paper offers an explanation of the resilience of commodity subsidies to reform, which relies on the inability of the government to credibly commit to a reform path. As a dictatorship, Egypt had a small number of veto players, making policy reversals easy. When opened to a competitive political process after 2011, Egypt lacked political groups that could make credible promises about policy changes. The paper provides a discussion of how appropriately designed reforms can mitigate the lack of credibility.

SummaryWhy are religious parties so popular in the new and emerging democracies of the Middle East and North Africa? This paper offers an alternative to the traditional accounts that stress religiosity, the repressive nature of the previous regimes, poverty and underdevelopment, or Arab grievances against Israel. Instead, it outlines a rational choice‐based explanation, in which religious political parties are able to address the problem of credible commitment, ubiquitous in new democracies. Instead of having to rely on patronage as the only mechanism of making pre‐electoral commitments, Islamic parties are able to directly make credible promises about the supply of public goods. This is because they already have a history and a reputation, which both serve as channels of communication with the voters. Their reputation relies most importantly on a track record of providing social services in environments where governments have failed to do so. Furthermore, we argue that their religious nature makes them well equipped to overcome collective action problems.

AbstractThis paper provides a review of the literature on post‐communist transitions. It outlines the debate between the proponents of rapid reforms and the advocates of neo‐institutionalism. Providing evidence from the transitional countries, it suggests an alternative approach, explicitly acknowledging the impact of two categories of constraints on reforms.

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We extend a model of wasteful state aid in Dewatripont and Seabright (2006, Journal of the European Economic Association 4, 513-522) by a supranational controlling authority. The model combines moral hazard and adverse selection to show that politicians fund wasteful projects to signal their effort. Voters, unable to observe project benefits or effort, reward funding with a reelection premium that separates a high-effort politician from a low-effort politician. We examine state aid control by a benevolent authority which receives extra signals about the state of the world. We find that signals on the politician type are worthless. For signals on the project type, we derive a sufficient condition for aid control to unambiguously decrease welfare. We also prove that politicians do not respond to marginal changes in incentives. In this setup, the optimal state aid control is fairly often no control.