Working papers

Abstract

Institutional and policy reforms often produce unintended consequences that result in institutional incongruity. Using the lens of complex systems theory, we describe three potential sources of complexity-induced incongruity: (1) policy multidimensionality, (2) network interactions, and (3) interdependent institutions and culture. Policy multidimensionality can take two forms: (1.1) interdependent policy effects, a top-down phenomenon that arises when policies interact with each other directly; and (1.2) population realignments, a bottom-up mechanism in which individuals re-self-organize according to an additional dimension that suddenly becomes salient. We analyze these complexity effects using game-theoretic and agent-based models and offer two insights related to the origins of institutional incongruity: First, that real-world instances of incongruity depend on complexity. In fact, some complexity may be necessary for incongruity to arise. Second, real-world cases of incongruity typically involve multiple complex causes, such as when policy dimensions become interdependent through population realignments.

Abstract

How much economic inequality is purely random?  Policy debates focus on factors like human and physical capital and technology as driving productivity differences, which in turn interact with institutional and social factors to determine inequality outcomes.  But is it possible that market dynamics are innately inequality-generating?  I build very simple agent-based models of exchange economies in which random processes drive high levels of inequality.  Some of these are so high that the economy explodes and GDP falls to 0.  I then add simple tax, transfer, and public goods features progressively and find optimal parameters that dramatically reduce inequality.  It is possible to do this with modest, realistic levels of taxation and expenditure similar to European countries today.  If the mechanisms are so straightforward, why are we not using them?

Abstract

We explore decentralization’s effects on local state capacity, defined as the ability

to increase local revenues and provide public services, focusing on Colombian munici-

palities at the beginning and end of the 20th century. We compare municipalities with

different levels of fiscal capacity at the beginning of the 20th century, before and after

decentralization. We also use an instrumental variable model to find only the effect

of fiscal decentralization. In both analyses, we find evidence that decentralization and

fiscal decentralization improve the public provision of education, including its quality,

while reducing the ability to raise local taxes, generating fiscal laziness. The effects

are more significant in municipalities with lower fiscal capacity at the beginning of the

20th century. These new behaviors are related to closing historical gaps in providing

public goods while broadening them in collecting local resources.

Book manuscript that intends to re-make Development Management as a theoretically rigorous field based on institutional theories of development from political science, economics and sociology.

Abstract

Industrial policy hovers in the intellectual space between market failure and government

failure. Can subnational competition overcome government failure and make industrial

policy more effective? The empirical evidence is limited and inconclusive. This paper

analyzes the first and second-order effects of federalist reforms, and then distinguishes

‘between’ vs. ‘within’-competition. Federalism’s first-order effects are on public sector

efficiency, effectiveness, and the quality of public decision-making – that is to say,

government failure or success. It only affects industrial policy indirectly, through this

channel. When diverse economic interests and civic groups interact through politics to

reveal, debate, and trade off their competing interests, and so fashion policy,

government will tend to be responsive and accountable. Where economic interests are

homogeneous or civil society is inert, government failure looms. Further second-order

effects of federalism include increasing the level of competition in a political system, and

limiting the power of government against citizens in ways that make democracy

compatible with open access regimes. Industrial policy is far more likely to succeed in

this context due to greater economic participation and dynamism.

Decentralization, or the devolution of power and resources from upper level to lower level governments, has become one of the hot topics of our time. And yet despite real experiments in decentralization under way in scores of countries, and literally hundreds of empirical studies, the economic and political effects of decentralization are still unclear. This paper seeks to provide the policy community with a synoptic guide to the state of current knowledge on decentralization and governance. Because ideal governance is an inherently subjective notion, the analysis is focused on the effects of decentralization on largely uncontroversial aspects of governance such as the degree of corruption and other arbitrary government interventions as well as efficiency in the provision of basic public services.

Section I emphasizes several aspects of decentralization related to accountability and governance. Decentralization is thought to lead to improved governance through four main channels: (i) Improved public oversight makes officials more accountable to citizens; (ii) More equal power distribution; (iii) Competition among local jurisdictions; and (iv) Political competition may be enhanced via the creation of new political platforms at the local level and new avenues to power within established parties. Section II focuses on intergovernmental relations and its connection with the structure of central government. It describe the fiscal and political aspects of intergovernmental relations, highlighting their potential to affect the impact of decentralization. The section closes with a brief discussion of the mechanisms by which accountability (emphasized in section I) and intergovernmental relations (emphasized section II) are intertwined.

Abstracto

Examinamos el caso de la descentralización en Colombia para explorar sus efectos sobre la responsabilidad del sector público a la demanda local, y a indicadores de pobreza. Comenzamos resumiendo datos sobre los efectos económicos de la descentralización. Los municipios colombianos aumentaron sus inversiones considerablemente en cuanto la descentralización se fue profundizando, mientras que los costos administrativos municipales desminuyeron. Los patrones de la inversión global cambiaron, de priorizar infraestructura y producción económica a servicios sociales y formación de capital humano. A continuación, exploramos los determinantes de la inversión pública local con una serie de modelos econométricos, encontrando que las variables políticas y electorales tienen una importancia decisiva.

[English translation]

We examine the case of decentralization in Colombia in order to explore its effects on poverty indicators, and on public sector responsiveness to real local demands. We first summarize economic data on the effects of decentralization. Colombian municipalities increased investment significantly as decentralization deepened, while running costs fell. Investment shifted from economic production and infrastructure to social services and human capital formation. We then explore the determinants of local public investment via a series of econometric models. Political and electoral variables prove to be decisively important.