Carson & Mota Prado: Mapping Corruption & its Institutional Determinants in Brazil

ABSTRACT:

This paper provides an overview of the status, sources, and forms of corruption in Brazil. While the country outperforms many of its regional and developmental peers on various corruption-related indicators, corruption continues to plague many areas of public life, most notably in regional and state governments, political parties, parliament, and public procurement at all levels of government. After analysing what various metrics reveal about the character and level of corruption in Brazil, we examine how specific scandals have impacted anti-corruption initiatives in the country. We conclude with an overview of the various institutions oriented towards fighting corruption in Brazil, highlighting how systemic failures and deficiencies undermine the performance of accountability mechanisms, particularly at the punishment level.

 

Available for download here.

Carson & Mota Prado: Brazilian Anti-Corruption Legislation and its Enforcement – Potential Lessons for Institutional Design

From the Introduction:

Over the past few decades corruption has emerged as a major issue in the global development discourse as policymakers and academics have increasingly focused on the political economy factors that promote or hinder inclusive, sustainable growth. No longer dismissed as innocuous grease speeding the wheels of inefficient bureaucracies (Huntington, 1968), corruption is now recognized widely as a force that undermines economic expansion and equality, accountable and transparent governance, and social cohesion (Bardhan, 1999; Gray and Kaufman, 1998; Mauro, 1995). While earlier investigations into the causes of corruption focused on societal and cultural factors, more recently, the rational actor model and new institutional economics have emphasized the role of institutional incentives on corrupt behaviors (Rose-Ackerman,
1999), suggesting they may be curtailed or fostered through institutional arrangements and reforms.

Building on this framework, we investigate Brazil’s struggle against corruption and the
institutional lessons revealed therein. Since returning to a democratic system in 1985, enacting a new constitution in 1988, and holding direct elections in 1989, Brazil has been plagued by corruption scandals. While the country outperforms many of its regional and developmental peers on various corruption-related indicators, corruption remains a problem in many areas of public life, most notably in regional and state governments, political parties, and parliament, as well as public procurement at all levels of government (Melo, 2013). In addition, many of the metrics capturing corruption have remained relatively stable since the transition to democracy in the late 1980s, and persistent and repeated scandals reveal continued and widespread corruption in various public institutions (Carson and Prado, 2014).

In this paper, we examine those reforms and institutions that have, anecdotally and empirically, proven potent in combating corruption in Brazil. Specifically, there has been significant progress associated with the systems of oversight and investigation (Speck, 2011; Arantes, 2011) but very little progress associated with punishment (Avritzer, 2011; Filgueiras, 2011; Taylor, 2009). Highlighting the interrelationships among state accountability institutions in these arenas, we argue that the duplication of oversight and investigative functions among various governmental entities has strengthened their collective impact. After reviewing the literature condemning the inefficiencies conventionally associated with institutional multiplicity, we examine the theoretical and empirical advantages of functional overlaps in the context of corruption, in which public power is used to secure private benefits. We then explore the instances of
institutional multiplicity in Brazil’s systems of corruption oversight (National Audit Court, Office of Comptroller General, media, civil society) and investigation (Public Ministry, Federal Police Department, Comptroller General). We contrast the successes achieved in oversight and investigation by these competing institutions with the obstacles encountered at the punishment stage of enforcement in which a single institution – the judiciary – has authority.

We conclude by arguing that our analysis of the Brazilian experience reveals the advantages in pursuing alternative institutional avenues through institutional multiplicity, in developing strategies to reduce corruption across contexts. We emphasize how functional institutional overlaps allow for compensation, collaboration and competition among various governmental entities and have bolstered anti-corruption efforts in Brazil. We argue that the country’s experience suggests that institutional multiplicity provides unique advantages in combatting a complex governance challenge like corruption.

 

Available for download here.

Chen: Transformation of Chinese Government’s Economic Function under Globalization

ABSTRACT:

Encountering with the strain of economic globalization, the Chinese government should fully recognize and understand their responsibilities in this process. They should positively change the way of government’s function, and fundamentally realize the transform of its economic function from “all-round” and “finiteness” orientation to the focus of “standardized service”, so that the government can provide better service to the public. This article mainly analyses how the Chinese government readjusts its role in the economy globalization, especially how to realize its transformation of economic function, and discuss the opportunities and challenges that Chinese government faces under the economic globalization, and then introduce the practical pathway of this process.

 

Available for download here.

Di Matteo, Clemens & Emes: An Economic and Fiscal Comparison of Alberta and Other North American Energy Producing Provinces and States

Executive Summary:

For more than two decades, Alberta has been a bulwark of the Canadian economy. Other jurisdictions in North America, however, have also experienced growth and prosperity from the economic opportunities afforded by natural resource development. Alberta’s comparative economic and fiscal success has been repeatedly confirmed within the Canadian context. However, an important and to-date largely absent comparison is how well Alberta performs when compared to other resource-based economies in North America. This paper begins the process of comparing and contrasting the economic and government financial performance of Alberta with other Canadian provinces and U.S. states with large energy sectors.

 

Available for download here.

Valdes-Benavides & Hernandez-Verme: Virtual Currencies, Micropayments and Monetary Policy – Where Are We Coming from and Where Does the Industry Stand?

ABSTRACT:

The exponential growth of the micropayments industry and the expansion of social networks in the last few years have produced the necessary conditions for the birth and growing importance of a distinct object that is fairly new to many disciplines: virtual currencies. The present work is a pioneering study in this field, in which we attempt to survey the main issues and challenges posed to Economic Theory and to the design and implementation of economic policy. Particularly, we are interested in the implications that virtual currencies may have for: 1) The economic principles associated with voluntary holdings of different kinds of money; 2) The rate-of-return dominance by some currencies that may coexist with currencies offering lower real returns; and 3) The state-of-the-art Monetary Dynamic Stochastic General Equilibrium models with micro-foundations. We believe that virtual currencies share some important features of both fiat currencies—whose value is mainly determined by the issuer’s reputation and the people’s beliefs regarding its future acceptability in exchange for goods or services—and commodity currencies, with intrinsic value. However, virtual currencies are typically issued by private agents, rather than by governments, and thus regulation and appropriate monitoring arise as potential problems that we may have to deal with in the near future.

 

Available for download here.

Schoenmaker: On the need for a fiscal backstop to the banking system

ABSTRACT:

In the aftermath of the financial crisis, governments are rightly reducing their exposure to the banking system. Bail-in arrangements should ensure that shareholders and creditors take the first losses. The next line of defence is a resolution fund, which is filled via levies on banks. Nevertheless, we argue that a fiscal backstop remains necessary for a banking system, as private arrangements may not be sufficient in a severe crisis. Without a credible backstop, depositors will run on a troubled banking system causing a bad equilibrium with a full breakdown of the banking system. Only the government can provide such a credible backstop.

 

Available for download here.

Rose & Sharfman: Shareholder Activism as a Corrective Mechanism in Corporate Governance (Updated Version)

My co-author and I have just posted a revised version of our article to SSRN.  Here’s the abstract:

Under an Arrowian framework, centralized authority and management provides for optimal decision making in large organizations. However, Arrow also recognized that other elements within the organization, beyond the central authority, occasionally may have superior information or decision making skills. In such cases, such elements may act as a corrective mechanism within the organization. In the context of public companies, this article finds that such a corrective mechanism comes in the form of hedge fund activism, or, more accurately, offensive shareholder activism.

Offensive shareholder activism operates in the market for corporate influence, not control. Consistent with a theoretical framework in which the value of centralized authority must be protected and a legal framework in which fiduciary responsibility rests with the board, authority is not shifted to influential but unaccountable shareholders. Governance entrepreneurs in the market for corporate influence must first identify those instances in which authority-sharing may result in value-enhancing policy decisions, and then persuade the board and/or other shareholders of the wisdom of their policies so that they will be permitted to share the authority necessary for the policies to be implemented. Thus, boards often reward offensive shareholder activists that prove to have superior information and/or strategies by at least temporarily sharing authority with the activists by either providing them seats in the board or simply allowing them to directly influence corporate policy. This article thus reframes the ongoing debate on shareholder activism by showing how offensive shareholder activism can co-exist with — and indeed, is supported by — Arrow’s theory of management centralization which undergirds the traditional authority model of corporate law and governance.

This article provides a much needed bridge between the traditional authority model of corporate law and governance as utilized by Professors Steven Bainbridge and Michael Dooley and those who have done empirical studies on hedge fund activism, including Lucian Bebchuk. The bridge helps to identify when shareholder activism may be a positive versus negative influence on corporate governance.

Available for download here.

Verbič & Spruk: Aging Population and Public Pensions – Theory and Macroeconometric Evidence

Summary: Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a theoretical model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate a rise of net replacement rate. We then provide and examine an empirical model of old-age  expenditure in a panel of 33 countries for the period 1998-2008. Our results  indicate that increases in effective retirement age and total fertility rate would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, further increases would add  considerable pressure on the fiscal sustainability of public pensions.

 

Available for download here.

Fichtner, Marcel & Gorni: An Investment Agenda for Europe

ABSTRACT:

Only strong economic growth will help Europe emerge from its crisis. The reforms implemented to date at national and European level have failed to impact the economy positively; this is due to excessive national, corporate, and private debts, weakness of the banking system, the lack of structural reforms, an insufficient institutional framework at European level, as well as a persisting climate of distrust in the stability of economic development. The probability of economic stagnation, characterized by high unemployment, declining incomes, decelerating potential growth, and deflation, is high and has increased significantly. The risk of economic development in Europe following Japan’s example of the 1990s is very real indeed.

This Economic Bulletin shows that one of Europe’s biggest economic weaknesses is a lack of private investment and that a European investment agenda is vital in order to generate the impetus required to push the European economy towards a sustainable recovery. European economic policy should focus not on higher public spending, but on increasing private investment as well as creating markets that function properly.

 

Available for download here.

 

Beretta & Iannini: China – A Case of 'Mercantilism' in a Backward Country?

ABSTRACT:

Despite being criticized for its inconsistencies, China’s mercantilism is considered a
commonplace in the literature focused on Chinese economic development. This paper intends to criticize the foundations of China’s ‘monetary’ and ‘financial’ mercantilism arguing that both provide only a feeble explanation of its economic success. In particular, rather than echoing the practices of classical mercantilism, such supposed ‘mercantilist’ approach, on the contrary. Reflects the Gerschenkronian model of development, according to which the growth of the ‘backward’ countries is based massively on banks and State support.

 

Available for download here.

 

(image: The Economist)