Essays on the political economy of development

This dissertation presents four distinct essays. Mutually beneficial deals between government officials and merchants have negative social externalities, motivating policies to reduce this form of corruption. Chapter 1 analyzes a model with the following two components. Guanxi, or connections, between officials and merchants remove the risk that merchants expose corrupt officials, providing the basis for officials to treat their friends preferentially, leading to ex ante friendship formation; and supervisors demand bribes from their officials with the goal of maximizing returns from unexposed officials. Individual merchant friendship formation imposes externalities on other merchants. I find that short-term policies can have long-term perverse effects. Furthermore, reducing bureaucratic size might non-intuitively increase corruption, and the mere perception that supervisors are corrupt reduces official-merchant corruption. Chapter 2 proposes an explanation for the political bandwagon effect. In democratic countries where investments risk expropriation when the ruling political party changes, voters have an incentive to boost the support of the expected winning party during elections to show investors that the incoming party is more popular than it actually is, and hence more likely to stay in office after the next election. With rational expectations, investors are not fooled, but voters nonetheless over-vote in favor of the expected winner. The determinants of over-voting are explored, and an empirical exercise provides initial support for the results.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Economics.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2004

Author dc:creator

• He, Ruimin, 1981-

Advisor dc:contributor.advisor

• Abhijit V. Banerjee and James M. Snyder, Jr.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/29430

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/29430