Rafael Di Tella

Do Police Reduce Crime? Estimates Using the Allocation of Police Forces After a Terrorist Attack

An important challenge in the crime literature is to isolate causal effects of police on crime. Following a terrorist attack on the main Jewish center in the city of Buenos Aires, Argentina, in July 1994, all Jewish institutions (including schools, synagogues, and clubs) were given 24-hour police protection. Thus, this hideous event induced a geographical allocation of police forces that can be presumed to be exogenous in a crime regression. Using data on the location of car thefts before and after the terrorist attack, we find a large deterrent effect of observable police presence on crime. The effect is local, with little or no appreciable impact outside the narrow area in which the police are deployed.

Does Competition Kill Corruption

Corrupt agents (officials or gangsters) exact money from firms. Corruption affects the number of firms in a free‐entry equilibrium. The degree of deep competition in the economy increases with lower overhead costs relative to profits and with a tendency toward similar cost structures. Increases in competition may not lower corruption. The model explains why a rational corrupt agent may extinguish the source of his bribe income by causing a firm to exit. Assessing the welfare effect of corruption is complicated by the fact that exit caused by corruption does not necessarily reduce social welfare.

National Champions and Corruption: Some Unpleasant Interventionist Arithmetic

The authors present a hold-up model of investment where active industrial policy promotes both corruption and investment. Since corruption deters investment, the effect of industrial policy on investment is lower than when corruption is absent. They find evidence suggesting that corruption is indeed higher in countries pursuing active industrial policies. Policy implications are illustrated by decomposing the total effect of industrial policy into a positive, direct effect, and a negative, corruption-induced effect. In the presence of corruption, the total effect of industrial policy on investment ranges between 84 and 56% of the direct impact. The magnitude of these corrections suggests that corruption considerations should not be absent from cost-benefit analyses of industrial policies. Copyright 1997 by Royal Economic Society.

The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires

Abstract We study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of Buenos Aires, Argentina, during 1996–97. We find a well‐defined, negative effect on the measures used to capture corruption. Prices paid by hospitals for basic, homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown. After this period prices increase, but they are still 10 percent lower than those prevailing before the crackdown. Relative to the precrackdown period, higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal (during the first phase of the crackdown) but have a negative and well‐defined effect when audit intensity takes intermediate levels (the last phase of the crackdown). Controlling for fixed effects, we find that the wage elasticity of input prices exceeds .20. These results are consistent with the standard model of bribes of Gary Becker and George Stigler.

Partisan Social Happiness

We use a new approach to study questions in political economy that relies on data on the subjective well-being of a large sample of people living in the OECD over the period 1975-1992. Controlling for the personal characteristics of the respondents, year and country fixed effects and country-specific time trends, we find that the data describe social happiness functions for left-wing and right-wing individuals where inflation and unemployment enter negatively. We use these functions to test the root assumption of partisan business cycle models. The evidence is consistent with the hypothesis that left-wing individuals care more about unemployment relative to inflation than right-wingers. Interestingly, we find that individuals declare themselves to be happier when the party they support is in power, even after controlling for macroeconomic variables. The effect of politics is large. Finally, we find that these partisan differences cannot be traced back to income differences. That is, it is misleading to assume—as it is done in the previous literature—that the poor (rich) behave similarly to the left (right). For example, inflation and unemployment do not have differential effects across rich and poor and the happiness levels of these two groups are unaffected by the identity of the party in power. Our findings are hard to explain using median voter models but are to be expected in a partisan world. Copyright 2005, Wiley-Blackwell.

Government Advertising and Media Coverage of Corruption Scandals

We construct measures of the extent to which the 4 main newspapers in Argentina report government corruption in their front page during the period 1998-2007 and correlate them with the extent to which each newspaper is a recipient of government advertising. The correlation is negative. The size is considerable: a one standard deviation increase in monthly government advertising (0.26 million pesos of 2000) is associated with a reduction in the coverage of the governments corruption scandals by 0.31 of a front page per month, or 25% of a standard deviation in our measure of coverage. The results are robust to the inclusion of newspaper, month, newspaper*president and individual-corruption scandal fixed effects as well as newspaper*president specific time trends.

Capture by Threat

We analyze a simple stochastic environment where policymakers can be threatened by ”nasty” interest groups. In the absence of these groups, the policymaker’s desire for reelection guarantees that good policies are implemented for every realization of the shock. When pressure groups can harass the policymaker, good policies will be chosen for only a subset of states of nature. In order to enlarge this subset, the public will often ...nd it convenient to elect ”strong” political leaders, increase the cost of exerting pressure and provide rents to those in power. The last result could be used as an explanation for the existence of political parties. They play a role resembling that of the supervisor in the literature on collusion in hierarchical agency. The paper also helps explain why honest politicians may choose bad policies. JEL classi...cation: D72, D78.

Informal Family Insurance and the Design of the Welfare State

We study the problem of unemployment benefit provision when the family is also a provider of social insurance. As a benchmark, a simple model is presented where risk-sharing motives govern intra-family transfers and more generous unemployment benefits, provided by the State, crowd out family risk-sharing arrangements one-for-one. The model is then extended to capture the idea that the State has an advantage vis-a-vis the family in the provision of insurance because it can tax individuals, whereas the family must rely on self-enforcing agreements. In this case, the effect of State transfers on intra-family transfers is found to be more than one-for-one. Thus, somewhat perversely, both informal transfers and total insurance transfers to the unemployed fall as the States generosity increases. This does not imply that the optimal size of the Welfare State is zero. Our results still hold when families are assumed to be better than the State at monitoring the job search activities of the unemployed.

ARE POLITICIANS REALLY PAID LIKE BUREAUCRATS

We provide the first empirical analysis of gubernatorial pay. Using U.S. data for 1950–90, we document substantial variation in the wages of politicians, both across states and over time. Gubernatorial wages respond to changes in state income per capita and taxes. We estimate that governors receive a 1 percent pay cut for each 10 percent increase in per capita tax payments and a 4.5 percent increase in pay for each 10 percent increase in income per capita in their states. There is evidence that the tax elasticity reflects a form of “reward for performance.” The evidence for the income elasticity of pay is less conclusive but is suggestive of “rent extraction” motives. Finally, we find that democratic institutions play an important role in shaping pay. For example, voter initiatives and the presence of political opposition significantly reduce the income elasticity of pay and increase tax elasticities of pay.

The Determination of Unemployment Benefits

While much empirical research has been done on the labour market consequences of unemployment benefits, there is remarkably little evidence on the forces determining benefits. The paper presents a simple model where workers desire insurance against the possibility of unemployment and unemployment benefits increase the unemployment rate. We then conduct, what we believe, is one of the first empirical analyses of the determinants of the parameters of the unemployment benefit system. Using OECD data for 1971-1989, controlling for year and country fixed effects, and controlling for the political colour of the government, we find evidence suggesting that benefits fall when the unemployment rate is high. This is consistent with the tax-effect described in Wright (1986) and Atkinson (1990). There is weaker evidence that benefits increase with positive changes in the unemployment rate, which may be proxying for the inflow rate and could be called an insurance effect.