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Key points

Comments on “How (Not) to Measure Institutions” by Professor Stefan Voigt Philip Keefer Development Research Group, The World Bank. Key points. SV: Measures of institutions should Capture de jure and de facto institutions (or,equivalently(?), formal and informal institutions).

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Key points

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  1. Comments on “How (Not) to Measure Institutions” by Professor Stefan VoigtPhilip KeeferDevelopment Research Group, The World Bank

  2. Key points • SV: • Measures of institutions should • Capture de jure and de facto institutions (or,equivalently(?), formal and informal institutions). • be objective. • be disaggregated. • PK: • These are important, desirable standards. • But application to two key questions is not clear. • How do we measure the security of property rights≈ no opportunistic behavior by government? • How do we measure the determinants of secure property rights?

  3. Security of property rights? • Lots of smoke in the literature. • Rule of law is hard to define. • Subjective is worse than objective. • Aggregated is worse than disaggregated. • ALL TRUE! • But ceteris is not paribus: • no objective, disaggregated measures of threat of opportunistic behavior. • And yet theory and qualitative evidence indicate this is a first order concern in development. • Hence: scholarly and policy communities (more or less) embrace subjective indicators.

  4. Measuring threats of gov’t. opportunism • Subjective measures variously labeled “risk of expropriation”, “rule of law” , etc. • Problems: • Noise: low opportunism countries can be rated as high opportunism. • Misattribution: they pick up other unobserved, growth-damaging features of countries • Appropriate response – throw out bath water, not baby: • Ignore differences between Thailand and Malaysia, Canada and the US, or Brazil and Mexico. (bath water) • DON’T ignore conclusions based on comparisons across many countries. (baby)

  5. Measures of Institutions • Attempts to use institutional measures as proxies for threat of opportunistic behavior. Problematic. • Assumes that institutions are the main drivers of opportunistic behavior. • Assumes that the institutions we measure are the most important. • Both may be incorrect. • Exposes, instead, an important research agenda: • under what conditions do governments refrain from opportunistic behavior? • Institutional debate REINFORCES dependence on subjective measures of opportunism!

  6. Institutional measures and opportunism • Presumed institutional determinants of opportunism: • “Tail wagging the dog” constraints on political opportunism: • Judicial independence • Central Bank Independence (opportunistic behavior in monetary policy) • Problem: agency independence is a function of politics (Keefer/Stasavage and many others) • Political institutions: • Political checks and balances (Subjective – Polity; Objective – Henisz or Database of Political Institutions)/ • Democracy (Subjective – Polity; Objective: DPI, Przeworski, et al.) • Problem: No controls for political incentives

  7. Missing: the politics of opportunistic behavior • Institutional puzzle of opportunistic behavior: • Some democracies/non-democracies restrain opportunism - many don’t. • Some parliaments check abusive behavior by executive –many don’t. • Democracy and checks measures don’t capture these distinctions.

  8. Need more thought/evidence on political incentives to secure property rights • Secure property rights = public good. • Opportunistic behavior reduces growth, hurting everyone. • So pursue indicators of government incentives to provide public goods that vary within dems/non-dems (e.g., of “political market imperfections”).

  9. Putting the politics into institutions • Within dems: • Types of electoral institutions (PR, list) • Measures of credibility of political promises • Types of political parties (programmatic/not) • Age of democracy • Within non-dems: intra-ruling party characteristics? Can leaders make credible promises to party members? • Age of party? • Internal checks on leaders? • Information distributed to members? • Sources? Unfinished agenda. But: Database of Political Institutions (WB); Cline Center for Democracy (U. Ill, Champaign).

  10. Need more nuanced institutional data • Within dems: • Budget process, Exec – Parliament • Intra-parliamentary decision making • Rules for candidate selection • Sources: few, now, but Cline Center for Democracy. . .

  11. In sum. . . • The world needs a better mousetrap to measure threat of opportunistic behavior. . . . . . but an objective indicator not on the horizon. • Better place to put resources: improving empirical basis for investigating determinants of opportunistic behavior. • Measuring political incentives • Measuring public sector characteristics (pub. sec fin. mgt; civil service; judiciary; etc) – at least as intermediate determinants of opportunism.

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