Timothy Besley

Property Rights and Investment Incentives: Theory and Evidence from Ghana

This paper examines the link between property rights and investment incentives. I develop three theoretical arguments based on security of tenure, using land as collateral and obtaining gains from trade. The paper then presents empirical evidence from two regions in Ghana. I investigate the possibility that rights are endogenous, with farmers making improvements to enhance their land rights. Finally, I suggest tests for which of the theories might explain the results.

An Economic Model of Representative Democracy

This paper develops an approach to the study of democratic policy-making where politicians are selected by the people from those citizens who present themselves as candidates for public office. The approach has a number of attractive features. First, it is a conceptualization of a pure form of representative democracy in which government is by, as well as of, the people. Second, the model is analytically tractable, being able to handle multidimensional issue and policy spaces very naturally. Third, it provides a vehicle for answering normative questions about the performance of representative democracy.

The Political Economy of Government Responsiveness: Theory and Evidence from India

The determinants of government responsiveness to its citizens is a key issue in political economy. Here we develop a model based on the solution of political agency problems. Having a more informed and politically active electorate strengthens incentives for governments to be responsive. This suggests that there is a role both for democratic institutions and the mass media in ensuring that the preferences of citizens are reflected in policy. The ideas behind the model are tested on panel data from India. We show that public food distribution and calamity relief expenditure are greater, controlling for shocks, where governments face greater electoral accountability and where newspaper circulation is highest.

Can Labor Regulation Hinder Economic Performance? Evidence from India

This paper investigates whether the industrial relations climate in Indian States has affected the pattern of manufacturing growth in the period 1958-92. We show that pro-worker amendments to the Industrial Disputes Act are associated with lowered investment, employment, productivity and output in registered manufacturing. Regulating in a pro-worker direction is also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labour can end up hurting the poor.

Group Lending, Repayment Incentives And Social Collateral

Abstract In this paper, we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment. This type of scheme, especially in the guise of the Grameen Bank in Bangladesh, has received increasing attention. We set up and analyze the ‘repayment game’ which group lending gives rise to. Our analysis suggests that such schemes have both positive and negative effects on repayment rates. The positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile. The negative effect arises when the whole group defaults, even when some members would have repaid under individual lending. We also show how group lending may harness social collateral, which serves to mitigate its negative effect.

Competition and Incentives with Motivated Agents

A unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission, as opposed to profit, as an organizational goal. Such mission-oriented organizations are frequently staffed by motivated agents who subscribe to the mission. This paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency. Matching economizes on the need for high-powered incentives. It can also, however, entrench bureaucratic conservatism and resistance to innovations. The framework developed in this paper is applied to school competition, incentives in the public sector and in private nonprofits, and the interdependence of incentives and productivity between the private for-profit sector and the mission-oriented sector through occupational choice.

Centralized versus decentralized provision of local public goods: a political economy approach

This paper takes a fresh look at the trade-off between centralized and decentralized provision of local public goods. The point of departure is to model a centralized system as one in which public spending is financed by general taxation, but districts can receive different levels of local public goods. In a world of benevolent governments, the disadvantages of centralization stressed in the existing literature disappear, suggesting that the case for decentralization must be driven by political economy considerations. Our political economy analysis assumes that under decentralization public goods are selected by locally elected representatives, while under a centralized system policy choices are determined by a legislature consisting of elected representatives from each district. We then study the role of taste heterogeneity, spillovers and legislative behavior in determining the case for centralization.

Taxes and Bribery: The Role of Wage Incentives

This paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption. The authors consider problems of both moral hazard, whic h arises because taking bribes cannot be observed without costly monitoring, and adverse selection, since not all potential tax inspectors can be identified as being honest or dishonest. The autho rs identify three wage regimes. First, one could pay the same wage that a tax inspector could earn elsewhere--his reservation wage. Second, one could pay a wage which solves the moral hazard problem, i.e. deters bribery. This they call an efficiency wage, by analogy with recent models examined in macroeconomics. Third, the government could pay a wage below the reservation wage, at which onl y the dishonest become tax inspectors--the capitulation wage. The authors make precise the conditions under which each yields the greatest amount of tax revenues, net of administrative costs. Copyright 1993 by Royal Economic Society.

Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test

Economists now appreciate that resource allocation in less economically developed economies is profoundly influenced by nonfirm economic institutions. However, our theories of nonfirm institutions often suggest different answers to many questions including those of policy. This paper illustrates a method for discriminating between alternative theories using data from German credit cooperatives from nineteenth and early twentieth century Germany. We build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteenth century data.

Land Reform, Poverty Reduction and Growth: Evidence from India

In recent times there has been a renewed interest in relationships between redistribution, growth and welfare. Land reforms have been central to strategies to improve the asset base of the poor in developing countries thought their effectiveness has been hindered by political constraints on implementation. In this paper we use panel data on the sixteen main Indian states from 1958 to 1992 to consider whether the large volume of land reforms as have been legislated have had an appreciable impact on growth and poverty. The evidence presented suggests that land reforms do appear to be associated with poverty reduction.