The Role of social institutions in inter-generational mobility

In this study we examine the role of institutions in shaping inter-generational mobility behavior. Research has traditionally emphasized the role of educational systems but cummulative evidence suggests that variations in their design offer only a very limited explanation for observed mobility differences. We examine the impact of welfare states and, in particular, how early childhood and family policies may influence the impact of economic and cultural characteristics of origin families on child outcomes.

The short arm of the law: judicial institutions and local governance in Brazil

This paper estimates the effect of judicial institutions on governance at the local level in Brazil. Our estimation strategy exploits a unique institutional feature of state judiciary branches which assigns prosecutors and judges to the most populous among contiguous counties forming a judiciary district. As a result of this assignment mechanism there are counties with nearly identical populations, some with and some without local judicial presence, which we exploit to impute counterfactual outcomes. Conditional on observable county characteristics, offenses per civil servant are about 35% lower in counties that have a local seat of the state judiciary. The lower incidence of infractions stems mostly from fewer violations of financial management regulations by local administrators, fewer instances of problems in project execution and project managment, fewer cases of non-existent or ineffective civil society oversight and fewer cases of improper handling of remittances to local residents.

Prime Property Institutions for a Subprime Era: Exploring Innovative Models of Residential Development and Finance

This paper breaks new ground toward contractual and institutional innovation in models of homeownership, equity building, and mortgage enforcement. Inspired by recent developments in the affordable housing sector and in other types of public financing schemes, this paper suggests extending institutional and financial strategies such as timeand place-based division of property rights, conditional subsidies, and credit mediation to alleviate the systemic risks of mortgage foreclosure. Alongside a for-profit shared equity scheme that would be led by local governments, we also outline a private market shared equity model, one of bootstrapping home buying with purchase options.

Institutions, Public Debt and Foreign Finance

We study the role of domestic financial institutions in sustaining capital flows to the private and public sector of a country whose government can default on its debt. As in recent public debt crises, in our model public defaults weaken banks' balance sheets, disrupting domestic financial markets. This effect leads to a novel complementarity between private capital inflows and public borrowing, where the former sustain the latter by boosting the government's cost of default. Our key message is that, by shaping the direction of private capital flows, financial institutions determine whether financial integration improves or reduces government discipline. We explore the implications of this complementarity for financial liberalization and debt-financed bailouts of banks. We present some evidence consistent with complementarity.

Pitfalls to Avoid when Measuring Institutions: Is 'Doing Business' Damaging Business?

Over recent years, both governments and international aid organizations have been devoting large amounts of resources to "simplifying" the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case.

Toward a theory of labor market institutions

Standard economic analysis holds that labor market rigidities are harmfulfor job creation and typically increase unemployment. But many orthodoxreforms of the labor market have proved difficult to implement because ofpolitical opposition. For these reasons it is important to explain why weobserve such regulations. In this paper I outline a theory of how they may arise and why they fit together. This theory is fully developed in aforthcoming book (Saint-Paul (2000)), to which the reader is referred forfurther details.

Do institutions and culture matter for business cycles?

We examine the relationship between institutions, culture and cyclical fluctuations for a sampleof 45 European, Middle Eastern and North African countries. Better governance is associated withshorter and less severe contractions and milder expansions. Certain cultural traits, such as lack ofacceptance of power distance and individualism, are also linked business cycle features. Businesscycle synchronization is tightly related to similarities in the institutional environment. Mediterraneancountries conform to these general tendencies.

Determinants of organizational form: Transaction costs and institutions in the European trucking industry

We explain why European trucking carriers are much smaller and rely more heavily on owner-operators(as opposed to employee drivers) than their US counterparts. Our analysis begins by ruling outdifferences in technology as the source of those disparities and confirms that standard hypothesesin organizational economics, which have been shown to explain the choice of organizational form inUS industry, also apply in Europe. We then argue that the preference for subcontracting oververtical integration in Europe is the result of European institutions particularly, labor regulationand tax laws that increase the costs of vertical integration.

Designing institutions for financial stability: Regulation and supervision by objective for the Euro area

In this paper, we discuss pros and cons ofdifferent models for financial market regulationand supervision and we present a proposal forthe re-organisation of regulatory and supervisoryagencies in the Euro Area. Our arguments areconsistent with both new theories and effectivebehaviour of financial intermediaries inindustrialized countries. Our proposed architecturefor financial market regulation is based on theassignment of different objectives or "finalities"to different authorities, both at the domesticand the European level. According to thisperspective, the three objectives of supervision- microeconomic stability, investor protectionand proper behaviour, efficiency and competition- should be assigned to three distinct Europeanauthorities, each one at the centre of a Europeansystem of financial regulators and supervisorsspecialized in overseeing the entire financialmarket with respect to a single regulatoryobjective and regardless of the subjective natureof the intermediaries. Each system should bestructured and organized similarly to the EuropeanSystem of Central Banks and work in connectionwith the central bank which would remain theinstitution responsible for price and macroeconomicstability. We suggest a plausible path to buildour 4-peak regulatory architecture in the Euro area.

Prime property institutions for a subprime era: Toward innovative models of homeownership

This Article breaks new ground toward contractual and institutional innovation in models of homeownership, equity building, and mortgage enforcement. Inspired by recent developments in the affordable housing sector and other types of public financing schemes, we suggest extending institutional and financial strategies such as time- and place-based division of property rights, conditional subsidies, and credit mediation to alleviate the systemic risks of mortgage foreclosure. Two new solutions offer a broad theoretical basis for such developments in the economic and legal institution of homeownership: a for-profit shared equity scheme led by local governments alongside a private market shared equity model, one of "bootstrapping home buying with purchase options".

The role of institutions in the contractual process

Human beings increase their productivity by specializingtheir resources and exchanging their products. Theorganization of exchange is costly, however, becausespecialized activities need coordination and incentiveshave to be aligned. This work first describes how theseexchanges are organized in an institutional environment.It then focuses on the dual effect of this environment-as with any other specialized resource, institutions maybe used for expropriation purposes. They enjoyspecialization advantages in safeguarding exchange butthey also make possible new forms of opportunism,causing new costs of exchange. Three perverse tendenciesare identified:In the legal field, there is a surplus ofmandatory rules and, at the same time, a deficit in default rules. Second, courts activity is biased againstthe quasi-judicial role of the parties and the market. Third, Market enforcement is based on reputationalassets that are badly exposed to opportunism.

How enforcement institutions affect markets

In an experiment we study market outcomes under alternative incentive structures for third-party enforcers. Our transactions resemble an anonymous credit market where lenders can give loans and borrowers can repay them. When borrowers default, judges are free to enforce repayment but are themselves paid differently in each of three treatments. First, paying judges according to lenders votes maximizes surplus and the equality of earnings. In contrast, paying judges according to borrowers votes triggers insufficient enforcement, destroying the market and producing the lowest surplus and the most unequal distribution of earnings. Lastly, judges paid the average earnings of borrowers and lenders achieve results close to those based on lender voting. We employ a steps-of-reasoning argument to interpret the performances of different institutions. When voting and enforcement rights are allocated to different classes of actors, the difficulty of their task changes, and arguably as a consequence they focus on high or low surplus equilibria.

Shocks and institutions in a job matching model

This paper explains the divergent behavior of European an US unemploymentrates using a job market matching model of the labor market with aninteraction between shocks an institutions. It shows that a reduction inTF growth rates, an increase in real interest rates, and an increase intax rates leads to a permanent increase in unemployment rates when thereplacement rates or initial tax rates are high, while no increase inunemployment occurs when institutions are "employment friendly". The paperalso shows that an increase in turbulence, modelle as an increase probabilityof skill loss, is not a robust explanation for the European unemploymentpuzzle in the context of a matching model with both endogenous job creationand job estruction.

Pitfalls to avoid when measuring institutions: Is "Doing Business" damaging business?

Over recent years, both governments and international aid organizations have been devoting large amounts of resources to simplifying the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case.