College of Behavioral & Social Sciences
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Item Essays on Institutions, Culture and Economic Outcomes(2017) Karalashvili, Nona; Murrell, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation examines how institutions and culture shape each other and affect individuals’ behavior. Chapter 1 analyzes the interplay between the law and prevailing values to understand the origins of legal order in an environment where neither legal nor non-legal institutions, taken separately, are capable of supporting agreements. These institutional imperfections give rise to a distinct way in which the law and prevailing values reinforce each other, and subsequently facilitate transactions. The model gives rise to multiple stable equilibria where identical societies in terms of laws and values may exhibit fundamentally divergent behavioral patterns with significant welfare implications. Analysis of the dynamics of laws and values reveals that the continued congruence of the legal system with the prevailing values may determine the steady-state culture and the equilibria that emerge along the way. Chapter 2 builds on a widespread notion that culture is acquired through learning and explores ways in which institutions, social structure, and human capital influence culture through a process of learning. In the model, institutions determine the uncertainty of the payoffs from cultural traits, social structure determines the strength of information flows from family and peers, and human capital determines the productiveness of individual deliberations. A unique and stable equilibrium culture emerges from this learning process. Institutions and social structure may influence the spread of values even without affecting the expected payoffs associated with these values. Institutions, social structure, and human capital frequently mute each other’s effects on culture. Finally, Chapter 3 develops a behavioral experiment to investigate effects of institutions on an important cultural trait – individuals’ tendency to trust in others – even in those contexts where these institutions are irrelevant to the particular trust behavior. In contrast with the previous experimental results but consistent with the literature on the importance of others’ intentions for decisions to reciprocate, I find evidence that institutions facilitating cooperation may decrease an individual's tendency to trust in others in a seemingly unrelated context. Identifying a systematic bias prompted by the institutional environment helps in understanding the potential ways in which institutions may impact individuals’ behavior.Item ESSAYS ON GRADUATION(2011) Qian, Rong; Reinhart, Carmen M; Vegh, Carlos; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation attempts to address the elusive concept of "graduation", that is the emergence from frequent crisis suffering status. It contains two chapters. The first uses a data set covering over two hundred years of sovereign debt, banking and inflation crises to explore the question of how long does it take a country to "graduate" from the typical pattern of serial crises that most emerging markets experience. We find that for default and inflation crises, twenty years is a significant period, but the distribution of recidivism has extremely fat tails. In the case of banking crises, it is unclear whether countries ever graduate. We also examine the more recent phenomenon of IMF programs, which sometimes result in "near misses" but sometimes end in default even after a program is instituted. The second chapter investigates the impact of countries' institutions on their likelihood of sovereign default from both an empirical and theoretical perspective. By employing a dataset of more than 80 countries, two facts emerge: 1) high institutional quality is associated with a low frequency of sovereign default crisis, and 2) in particular, polarized governments tend to default more often. To explain these facts, we developed a model that establishes a link between institutions, government polarization and sovereign default crises. Countries that lack rules and institutional settings to limit the pressure of powerful groups on a central government's policies default more often than countries that do have good institutions. Given that there are no barriers to limit the influence of powerful groups, a more polarized government defaults more because groups do not coordinate, giving rise to a negative externality. Simulations of the model succeed in matching the cross-country differences in sovereign default frequencies, given their institutional quality and degree of government polarization in the data.Item Essays on Optimal Aid and Fiscal Policy in Developing Economies(2010) Banerjee, Ryan Niladri; Mendoza, Enrique G; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Essay I: Which countries receive aid as insurance and why? A theory of optimal aid policy Empirical evidence shows that developing countries with opaque institutions receive procyclical Official Development Aid (ODA) while developing countries with transparent institutions receive acyclical or countercyclical ODA. This paper provides a dynamic equilibrium model of optimal aid policy that quantitatively accounts for this fact. In the model, the donor wants to (a) encourage actions by the aid receiving government that increase output and (b) smooth out economic fluctuations. The transparency of institutions in the country affects the donor's ability to distinguish downturns caused by exogenous shocks, from those caused by government actions. The solution to the donor's mechanism design problem is dependent on the transparency of government actions. If the donor has good information about government actions, aid policy is countercyclical and aid acts as insurance. However, if the donor is unable to infer perfectly the cause of the downturn, aid policy is procyclical to encourage unobservable good actions. The model predicts a similar pattern for ODA commitments for the following year which is supported by the data. For countries with opaque institutions procyclical aid is the result of optimal policies given the information constraints of donors. Essay II: New Evidence on the Relationship Between Aid Cyclicality and Institutions This paper documents a new fact: the correlation between official development assistance (ODA) and GDP is negatively related to the quality of institutions in the receipient country. Differences in institutional indicators that measure corruption, rule of law, government effectiveness and government transparency are particularly important. The results are robust to several modifications. The results hold for both pooled and within regressions specifications and for different sources of institutional quality measures. This fact also reconciles conflicting empirical results about the correlation between ODA and GDP in the literature. For instance, Pallage and Robe (2001) find a positive correlation in two thirds of African economies and half of non-African developing economies, but Rand and Tarp (2002) find no correlation in a different set of developing countries. First, once institutions are accounted for, African economies are not treated differently by donors. Second, the sample in Rand and Tarp (2002) comprises developing economies which have relatively good institutions, therefore, those countries receive acyclical or countercyclical aid. \\ Essay II: Optimal Procyclical Fiscal Policy Without Procyclical Government Spending Procyclical fiscal policy can be caused by either procyclical government expenditure, countercyclical taxes or both. The majority of models which try to explain procyclical fiscal policy as the result of optimal policy have procyclical government expenditures. This paper develops a model which optimally generates procyclical fiscal policy while keeping government expenditures acyclical. Instead, taxes are optimally countercyclical. The model uses endogenous sovereign default to generate an environment where interest rates are lower in booms than in recessions. If household's have insufficient access to financial instruments it is optimal for the government to lower taxes and borrow during booms. This enables impatient households to benefit from the lower interest rates in booms by helping the consumer bring consumption forward.Item Regulation, Institutions, and Productivity Growth(2006-08-24) Oviedo Silva, Ana Maria; Haltiwanger, John C; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation investigates how the investment climate affects firm dynamics, productivity, and macroeconomic performance across countries. The first chapter provides an empirical analysis of the macroeconomic impact of business regulation. It characterizes the stylized facts on regulation across the world, using a set of comprehensive indicators of regulation in a large number of countries. These indicators are used to study the effects of regulation on growth and volatility employing cross-country regression analysis. The analysis allows for the effects of regulation to vary with the country's level of institutional development, and it also controls for the likely endogeneity of regulation with respect to macroeconomic performance. Results show that a heavier regulatory burden reduces growth and increases volatility, although these effects are smaller the higher the quality of the overall institutional framework. The second chapter focuses on the mechanism through which regulation impacts on macroeconomic outcomes, and assesses the role of firm entry and exit as channel of transmission of the effects of regulation on productivity growth. We use sector and manufacturing-wide productivity and firm turnover data derived from firm-level information for OECD and Latin American countries to explore the effects of various types of regulations following a two-step approach. The first step examines the impact of regulation on firm turnover. The second assesses the effects of firm turnover on productivity growth. Results provide partial evidence that regulation, particularly product market regulation, hampers productivity growth by deterring firm entry and exit. The third chapter investigates the effects of regulation uncertainty on the innovative behavior of firms, and on the efficiency of the Schumpeterian "creative destruction" process. It argues that regulation uncertainty, caused by a poor institutional environment, distorts the selection process of firms and leads to high observed reallocation, but low productivity. Following Hopenhayn (1992), an industry is modeled where firms engage in innovative investment and face an uncertain innovation cost. The analysis centers on the entry and exit decision of firms, their innovative behavior, and the subsequent industry evolution. In equilibrium, a more uncertain cost creates distortions in the reallocation process that lead to lower average productivity, size, and innovative investments, having similar effects as an increase in the magnitude of the cost. This indicates that, in addition to the level of regulation, unpredictability of regulation is an important source of inefficiency in the reallocation process.Item Autocephaly as a Function of Institutional Stability and Organizational Change in the Eastern Orthodox Church(2005-02-01) Sanderson, Charles; Pearson, Margaret; Government and Politics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)The ecclesiastical organization uniquely characteristic of the Christian East is the autocephalous ("self-headed," or self-governing) church, which in the modern states of Eastern Europe, Russia, and the Balkans are truly national churches, whose boundaries, administrative structures, and identities closely mirror those of the state. Conventional wisdom attributes autocephaly to nationalism: Christianity inevitably becomes closely associated with national identity in those states whose churches are of Byzantine political patrimony, and autocephaly is the organizational manifestation of that association. This study argues that a better explanation for the prevalence of autocephaly lies with the church's institutional framework. Formal and informal institutions, or "rules of the game," structure the relationships between groups of local churches and provide incentives to observe constraints upon actions that restructure those relationships. A restructuring of ecclesiastical relationships implies that an alteration in incentives changed the equilibrium. In the Christian East, enforcement of the equilibrium historically has been carried out by the state. This study explores the institutional framework of the Orthodox Church, outlining the formal (canon law) and informal (conventions and tradition) rules governing organizational change. These rules are then examined in light of historical evidence of how autocephalous churches have come into being throughout the two millennia of the church's existence. The study concludes that the institutional framework of the Orthodox Church, formed within the political context of the Roman and later East Roman (Byzantine) Empire, became increasingly incongruent both with the changing political geography of Eastern Europe and with the enforcing role afforded to secular political authority as imperial structures gave way to modern nation-states. Since the formal institutional rules have proved resistant to change and unable to keep pace with the changing political geography, the Orthodox Church has relied increasingly upon flexible informal rules which has resulted in a proliferation of autocephalous churches. In addition to locating a more compelling explanation for autocephaly within institutional theory, this study argues that the Orthodox Church provides a compelling area for exploration of some of the more vexing analytical problems in institutional theory, such as why institutions change slowly or even appear not to change at all.