Bought and Paid for
A Fistful of Dollars: Lobbying and the Financial Crisis
Deniz Igan, Prachi Mishra & Thierry Tressel
NBER Working Paper, May 2011
Abstract:
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions' lobbying and mortgage lending activities to answer this question. We find that lobbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders' mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during the rescue of Bear Stearns and the collapse of Lehman Brothers, but positive abnormal returns when the bailout was announced. Finally, we find a higher bailout probability for lobbying lenders. These findings suggest that lending by politically active lenders played a role in accumulation of risks and thus contributed to the financial crisis.
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No good deed goes unquestioned: Cynical reconstruals maintain belief in the power of self-interest
Clayton Critcher & David Dunning
Journal of Experimental Social Psychology, forthcoming
Abstract:
In four studies, we examined how people maintain beliefs that self-interest is a strong determinant of behavior, even in the face of disconfirming evidence. People reflecting on selfless behavior tend to reconstrue it in terms of self-interested motives, but do not similarly scrutinize selfish behaviors for selfless motives. Study 1 found that people react to new information that selfless behavior is common by interpreting it as more reflective of self-interest. Studies 2a and 2b, applying a Bayesian analysis, demonstrated that people see "too much" self-interest in seemingly selfless actions, given their prior beliefs, but see the predicted amount of self-interest in seemingly selfish actions. This demonstrates that people do not possess internally consistent belief systems, but rather undue cynicism. In Study 3, participants read about real philanthropists whose acts of generosity had been heralded by major news outlets. As participants spent more time considering why such philanthropy was performed, they formed more cynical impressions of the philanthropists' motives. Beyond offering insight into why belief in the norm of self-interest persists, these studies introduce a novel route by which beliefs resist disconfirmation.
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Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives
Alan Ziobrowski et al.
Business and Politics, April 2011
Abstract:
A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders. We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).
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Do interest groups affect US immigration policy?
Giovanni Facchini, Anna Maria Mayda & Prachi Mishra
Journal of International Economics, forthcoming
Abstract:
While anecdotal evidence suggests that interest groups play a key role in shaping immigration policy, there is no systematic empirical analysis of this issue. In this paper, we construct an industry-level dataset for the United States, by combining information on the number of temporary work visas with data on lobbying activity associated with immigration. We find robust evidence that both pro- and anti-immigration interest groups play a statistically significant and economically relevant role in shaping migration policy across sectors. Barriers to migration are lower in sectors in which business interest groups incur larger lobbying expenditures and higher in sectors where labor unions are more important.
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Corruption is bad for growth (even in the United States)
Noel Johnson, Courtney LaFountain & Steven Yamarik
Public Choice, June 2011, Pages 377-393
Abstract:
We estimate the impact of corruption on growth of output per worker in U.S. states. We improve on existing studies of the cost of corruption by using a better specified empirical model, focusing on a study population that is less likely to be affected by parameter heterogeneity, and controlling for endogeneity using political variables to instrument for corruption. We find that corruption plays a significant and causal role in lowering growth and investment across the states.
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Measures of corruption and determinants of US corruption
Rajeev Goel & Michael Nelson
Economics of Governance, June 2011, Pages 155-176
Abstract:
This paper contributes to the literature by examining whether conclusions from empirical models of corruption determinants are robust with respect to three alternative measures of corrupt activity for the US states. Are the determinants of US corruption sensitive to the choice of the measure of corruption? Overall, the answer to this question is that the choice of the measure of corruption matters in explaining corruption. However, some findings are robust across measures. For instance, greater educational attainment lowers corruption, while greater judicial employment adds to corruption. Southern states were found to be more corrupt, ceteris paribus. We also provide evidence that it is important to control for enforcement efforts in empirical modeling using convictions as a measure of corruption. Significant differences, however, across corruption measures occur in a number of other instances. Specifically, the effects of urbanization, economic prosperity, population size, media, government spending, and enforcement are sensitive to the measure of corruption. Further, the influences of the nation's foreign neighbors and of the location of the state relative to the nation's capital remain unclear.
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Haldun Evrenk
Journal of Economic Behavior & Organization, forthcoming
Abstract:
Using a theoretical model of repeated political competition among two career politicians, I study the incentives of both the corrupt and clean politicians not to adopt a fully effective reform targeting political corruption. In the setup I study, each politician can credibly adopt the reform as part of his policy platform in the elections. Yet, when the level of political corruption is high, neither politician does so in a Nash Equilibrium. Intuitively, political corruption changes the zero-sum nature of political competition: the reform eliminates the illegal rents of the corrupt candidate and the competitive advantage of the clean candidate.
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Big City Mayors: Political Specialization and Business Domination in the 19th and 20th Centuries
Andrew McNitt
Journal of Urban Affairs, forthcoming
Abstract:
An examination of mayoral recruitment in 19 major American cities from 1820 to 1995 finds that mayors are now more likely to have prior political experience, serve longer in office, and have previously served on city councils. They are also less likely to come from business backgrounds, and those mayors who are still in business are less likely to have big business and manufacturing backgrounds. A multivariate analysis of mayors serving between 1870 and 1995 indicates that mayors from business backgrounds are less likely to be selected when their cities have partisan elections, when their cities have a large African American population, and when mayors are machine candidates. This analysis also finds that the number of mayors with business backgrounds declines as the number of college graduates increases, even though (after 1896) political machines disappeared and more cities adopted reform (council manager and commission) governments.
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The Consequences of Presidential Patronage for Federal Agency Performance
Nick Gallo & David Lewis
Journal of Public Administration Research and Theory, forthcoming
Abstract:
In this article, we examine the relationship between presidential patronage and federal agency performance. Using Program Assessment Rating Tool (PART) management scores for 1,016 federal programs during the Bush Administration, we compare the performance of federal programs administered by appointees from the campaign or party against programs run by other appointees or career professionals. We introduce new means of overcoming the shortcomings of PART scores in order to make reliable inferences from this measure of federal program performance. We find that federal programs administered by appointees from the campaign or party earn lower PART scores than programs run by other appointees or by career executives. We conclude that although appointing persons from the campaign or party provides presidents an important source of political capital and arguably improves accountability, it also has costs for agency performance.
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James Tilley & Sara Hobolt
Journal of Politics, April 2011, Pages 316-330
Abstract:
The idea that voters use elections to hold governments to account for their performance lies at the heart of democratic theory, and countless studies have shown that economic performance can predict support for incumbents. Nonetheless recent work has challenged this simple link between policy performance and party choice by arguing that any relationship is conditioned by prior political beliefs, notably partisanship. Some have argued that economic perceptions are shaped by party choice rather than vice versa. Others have claimed that voters tend to attribute responsibility for perceived successes to their favored party, but absolve them of responsibility if performance is poor. This study examines the effect of partisanship on both performance evaluations and responsibility attributions using survey experiments to disentangle the complex causal relationships. Our findings show that partisan loyalties have pervasive effects on responsibility attributions, but somewhat weaker effects on evaluations of performance.
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Christine Loucks & Randall Bennett
Contemporary Economic Policy, April 2011, Pages 163-177
Abstract:
This paper examines the relationship between political action committee (PAC) contributions from four sectors of the health care industry and committee membership in the House of Representatives over three election cycles, 1998-2002. The hypothesis tested is that members of the House who serve on committees with oversight responsibility for the health care industry are more likely to receive contributions from health care industry PACs than members of the House who do not serve on these committees. We find mixed support for the hypothesis.
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Jordi Blanes i Vidal, Mirko Draca & Christian Fons-Rosen
London School of Economics Working Paper, July 2010
Abstract:
Washington's "revolving door" -- the movement from government service into the lobbying industry -- is regarded as a major concern for policy-making. We study how ex-government staffers benefit from the personal connections acquired during their public service. Lobbyists with experience in the office of a US Senator suffer a 24% drop in generated revenue when that Senator leaves office. The effect is immediate, discontinuous around the exit period and long-lasting. Consistent with the notion that lobbyists sell access to powerful politicians, the drop in revenue is increasing in the seniority of and committee assignments power held by the exiting politician.
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Populism, Paranoia, and the Politics of Free Silver
Samuel DeCanio
Studies in American Political Development, April 2011, Pages 1-26
Abstract:
This essay defends the Populists against charges that they espoused an irrationally conspiratorial view of American history. Focusing on monetary policy, and the free silver issue in particular, I argue that the Populists correctly suspected that bankers conspired to demonetize silver and demonstrate that William Ralston, president of The Bank of California, secretly bribed Treasury Department bureaucrats and used Western congressmen to pass the Coinage Act of 1873. Ralston's involvement in silver's demonetization has important ramifications for our understanding of the free silver movement. Some of the congressmen who helped Ralston demonetize silver paradoxically went on to lead the free silver movement, blaming Eastern financiers for the measure they helped pass, and created organizations such as the American Bimetallic League and the American Bimetallic Party, organizations that popularized the ideas subsequently adopted by the Populists and William Jennings Bryan. As some leaders of the free silver movement were deeply involved in silver's demonetization, this period exhibited levels of duplicity that have been unrecognized until now.
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Do Migrants Improve Governance at Home? Evidence from a Voting Experiment
Catia Batista & Pedro Vicente
World Bank Economic Review, forthcoming
Abstract:
Can international migration promote better institutions at home by raising the demand for political accountability? A behavioral measure of the population's desire for better governance was designed to examine this question. A postcard was distributed to households promising that if enough postcards were mailed back, results from a survey module on perceived corruption would be published in the national media. Data from a tailored household survey were used to examine the determinants of this behavioral measure of demand for political accountability (undertaking the costly action of mailing the postcard) and to isolate the positive effect of international emigration using locality-level variation. The estimated effects are robust to the use of instrumental variables, including past migration and macro shocks in the destination countries. The estimated effects can be attributed mainly to migrants who emigrated to countries with better governance, especially migrants who return home.
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Hold your nose and vote: Corruption and public decisions in a representative democracy
Marco Pani
Public Choice, July 2011, Pages 163-196
Abstract:
This paper analyzes how corruption alters policy decisions in democracy, and examines whether this distortion can result in a long-term persistence of corruption even when the voters are well informed and rational. By applying a citizen-candidate model of representative democracy, the paper analyzes how corruption distorts the allocation of resources between public and private consumption, altering the policy preferences of elected and nonelected citizens in opposite directions. The outcome is a reduction in real public expenditure and, if the median voter's demand for public goods is sufficiently elastic, a reduction in taxes. In this case, some citizens benefit indirectly from corruption. The paper also presents some empirical evidence that, in democratic countries, corruption results in lower tax revenue, and proceeds to show that, when this occurs, citizens anticipating a shift in preferences in favor of public expenditure may support institutions that favor corruption. This result complements the findings of other studies that have attributed the persistence of corruption in democracy to some failure on the part of the voters or the electoral system. It also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community.
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Corporate Independent Spending in the Post-BCRA to Pre-Citizens United Era
Susan Clark Muntean
Business and Politics, April 2011
Abstract:
This paper proposes a theory of political action based upon ownership structure and tests this theory utilizing data on independent expenditures during the campaign finance regulatory regime consisting of the period after the Bipartisan Campaign Reform Act of 2002 and before the U.S. Supreme Court's Citizens United decision in 2010. The results suggest a strong relationship between the presence of an entrepreneur or founding family and firm participation in electoral politics via contributions to independent political organizations. Both privately held and publicly traded firms with a principal owner present are more likely to contribute to independent political organizations in the first place, and once they do contribute, give a far greater amount relative to firms without a principal owner. The implications for the post-Citizens United era and possible motivations behind independent expenditures and their impact on other stakeholders including investors, employees, competitors, and the public are discussed. This paper contributes to our understanding of which corporate interests are most likely to spend money on electoral politics independent of the political party or candidate and seeks to broaden discourse about why these actors might participate in elections in the first place as well as the impact of their participation.