Political Connections and Transfers
Paper Session
Monday, Jan. 4, 2021 3:45 PM - 5:45 PM (EST)
- Chair: Leonard Wantchekon, Princeton University
Political Uncertainty, Market Structure and the Forms of State Capture
Abstract
This paper studies when and why firms prefer more direct forms of state capture (i.e. without intermediaries, such as patronage or appointments to the bureaucracy) to more indirect ones (e.g. lobbying). Using a novel database on contractual arrangements between politicians, political brokers and businessmen in Benin, we find that an increase in political uncertainty is associated with an increase in direct forms of capture. We rationalize our findings through a principal-agent model under political uncertainty. Firms induce market distortions by making transfers to incumbents. Direct capture acts as an insurance for the firm, guaranteeing that its paid for distortions are kept in place even when the incumbent is displaced. We structurally estimate our model and show that policies thought to decrease state capture, such as improved bureaucrat selection, can have little to no effect once substitution towards indirect control is accounted for.Sharecropping and Clientelism in Pakistan
Abstract
Clientelist politics is widely perceived as both pervasive and detrimental to development and democracy. In contrast to vote-buying, it entails repeated interactions between patrons and clients, that is best captured by the political exchange between rural elites and their long-standing electorate involving insurance provision and income protection in return for political support. Exploiting Pakistan’s transition to federal democracy and tenant-level panel data, I demonstrate that elections resulted in higher sharecropping (risk-pooling agricultural contracts) by politician landlords—tenants of politicians received greater access to land for sharecropping and other private goods after the election, relative to other tenant households. I argue that while sharecropping allows landlord politicians to perpetuate power, the ability to use sharecropping as part of a clientelist exchange is lower when the efficiency cost of sharecropping is high. I construct a measure of exogenous technological change in agriculture that lowers incentives for sharecropping, and show that the change in technology reduced the likelihood of landlords’ election success in historically landlord-dominated areas.Private Credit under Political Influence: Evidence from France
Abstract
Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%-14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.JEL Classifications
- H7 - State and Local Government; Intergovernmental Relations
- D7 - Analysis of Collective Decision-Making