Essays on Intitutional Governance

Abstract

This thesis consists of three chapters on the choice of institutional governance.

The first chapter provides empirical evidence on the effect of local norms on the contractual choice, using a comprehensive dataset on US agricultural leasing contracts. We focus on the choice between cash-rent and share-rent contracts and examine whether the prevalence of share-rent contracts has an effect on contractual choice. We use a generalized spatial two-stage least squares approach to address endogeneity issues. Our results show that there is a strong tendency for agents to choose the contractual form that conforms to local norms. Our study also suggests that share-rent contracts are more likely to be chosen when there is a higher likelihood or more severe consequence of opportunistic behavior by agents. This suggests that share contracts reduce transaction costs by helping to foster a productive governance atmosphere for the contracting parties. The second chapter explores whether the choice of institutions depends on the historical experience and the stock of knowledge of economic agents. We provide firm-level evidence on the choice of between legal and relational governance, in the context of the transition economy of Romania. Our results show that previously state-owned businesses are more likely to rely on legal governance than other firms. We also find evidence that the legal knowledge held by firm managers affects the choice of governance, which is consistent with the path-dependence theory of institutional development. The third chapter is based on a cross-country study of the link between public spending on health care, quality of institutional governance and child health outcomes. We show that both public spending on health care and the quality of governance matter for the reduction of child and infant mortality rates.