Marcos Salgado

How do rulers manage to govern when they cannot implement policy themselves and have limited means to monitor and even communicate with their agents? The personal loyalties of high-ranking officials can help overcome or exacerbate agency problems. The Spanish Empire promoted links between colonial officials and their superiors in Spain and discouraged social ties between them and local elites. I use superiors’ entries and exits as within-official shocks to connections to estimate their effect on promotions and performance. I find that connected ministers were more likely to be promoted and raised more revenue. On the other hand, ministers with more links to local elites collected less revenue. These patterns are explained by personal connections, defined as sustained in-person interactions during their early careers. I also validate the connections measure by showing that they predict endogenous friendships. Link to paper, Links to a podcast episode about the paper: The Visible Hand, Spotify, Apple podcasts.

(with Saumitra Jha and Peter Koudijs)

Can differences in beliefs about politics, particularly the benefits of war and peace, move markets? During the Siege of Paris by the Prussian army (1870-71) and its aftermath, we document that the price of the French 3% sovereign bond (rente) differed persistently between the Bourse in Paris and elsewhere, despite being one of the most widely held and actively traded financial assets in continental Europe. Further, these differences were large, reaching the equivalent of almost 1% of French GDP in overall value. We show these differences manifested themselves during the period of limited arbitrage induced by the Siege and persisted until the terms of peace were revealed.

As long as French military resistance continued, the rente price was higher in Paris than the provincial markets, but when the parties ceased fire and started negotiating peace terms this pattern was reversed. Further, while the price responded more to war events in Paris, the price responded more to peace events elsewhere.

These specific patterns are difficult to reconcile with other potential mechanisms, including differential information sets, need for liquidity, or relative market thickness. Instead, we argue, these results are consistent with prices reflecting the updating of different prevailing political beliefs that existed in Paris and elsewhere about the benefits of war and peace. Link to paper

(with Antonella Bandiera and Valentín Figueroa)

In this paper, we find that dynastic marriages between states in Medieval and Modern Europe increased the probability of war. Even though the conventional wisdom is that dynastic marriages reduced conflict, when two royal families intermarried, this opened the door to what we call “internationalized succession disputes”: Foreign actors obtained legal claims to the kingdom’s land and titles. Since marriages are endogenous, we use an instrumental variable design that exploits randomness in the gender and timing of royal offspring. Rulers with sons were more likely to forge dynastic alliances with rulers with daughters, and we use the number of male-female pairs between dynastic families as an instrument for the observed quantity of marriages. We find a large, positive effect of marriages on war. Link to paper