Measuring Law and Institutions III:
Analytical and Methodological Challenges
Barcelona. October 2-3, 2009
Institutional analysis has been suffering from a deficit of measurement. In some areas, systematic measures have already been developed but in others theories are still waiting for systematic measurement. Microanalytical studies have been successful in measuring how economic agents coordinate in a given institutional environment. However, they often emphasize certain dimensions of organizational performance and focus on single transactions and cases, which makes their conclusions hard to generalize. Moreover, since many of them take institutions as given, they sideline the measure of institutional performance. On the other hand, the use of measurement in “macro” analyses of institutions has been essential in redefining research and policy agendas but many of the measures are often seen as too general. They are claimed to reduce complex institutions into oversimplified categories, such as legal origins, the rule of law or political regimes, establishing links with macroeconomic performance without paying due attention to “transmission” mechanisms between institutional features and alleged consequences.
Two related workshops have already been held in Paris in December 2006 and 2007. The first gathered representatives of organizations producing institutional indicators—such as the WB, OECD, ILO, EU (see http://economix.u-paris10.fr/en/activites/colloques/?id=23). In the second, prominent scholars presented works based on these indicators, which were then discussed by NIE and law and economics scholars (http://economix.u-paris10.fr/en/activites/ws/?id=52). These workshops allowed evaluation of the achievements and drawbacks of these initiatives, indicating the relative absence of theoretical foundations in many of the indicators and identifying the strong influence of policy issues on methodologies and databases.
Taking stock of these experiences, the Workshop will focus on how New Institutional Economics may inform these quantitative approaches to institutions. It aims at identifying the key methodological problems and evaluating the different solutions available, examining both the role of theory in measurement and the role of measurement in policy. In particular, the Workshop will explore how to overcome the difficulties for (1) implementing institutional measures, (2) capturing institutional structure, (3) enriching the range of measured institutional outcomes and (4) producing useful measures for management and policy.
The format of the contributions to the Barcelona Workshop is relatively open, including methodological analyses, surveys, positions papers. The papers deal either with the whole or some part of the following sequence: Theory → Measurement → Test → Policy
Contributions will be published in a major academic journal. We are considering the possibility of producing a “position paper” which would reflect the shared views on the topic.
Friday, 2 October
Session 1: Navigating the sequence theory-measures-policy
Chair: Scott E. Masten (University of Michigan)
9h00 – 9h30: Gary D. Libecap (USCB) and Dean Lueck (University of Arizona)
“The Demarcation of Land and the Role of Coordinating Institutions” [+/-] Show/Hide abstract
This paper examines the economic effects of the two dominant land demarcation systems: metes and bounds (MB) and the rectangular system (RS). Under MB property is demarcated by its perimeter as indicated by natural features and human structures and linked to surveys within local political jurisdictions. Under RS land demarcation is governed by a common grid with uniform square shapes, sizes, alignment, and geographically-based addresses. In the U.S. MB is used principally in the original 13 states, Kentucky, and Tennessee. The RS is found elsewhere under the Land Ordinance of 1785 that divided federal lands into square-mile sections. We develop an economic framework for examining land demarcation systems and draw predictions. Our empirical analysis focuses on a 39-county area of Ohio where both MB and RS were used in adjacent areas as a result of exogenous historical factors. The results indicate that topography influences parcel shape and size under a MB system; that parcel shapes are aligned under the RS; and that the RS is associated with higher land values, more roads, more land transactions, and fewer legal disputes than MB, all else equal. The comparative limitations of MB appear to have had negative long-term effects on land values and economic activity in the sample area.
9h30 – 10h00: Benito Arruñada (Pompeu Fabra University), Dean Williamson (US Department of Justice) and Giorgio Zanarone (Colegio Universitario de Estudios Financieros)
“The Influence of Interest Groups on Institutions: Evidence from the American State Courts” [+/-] Show/Hide abstract
Previous work has posed a supply-side hypothesis on the nature of judicial decisions in American courts: the civil law origin of some states led them to constrain judicial independence, thus diminishing the quality of their courts. We introduce a complementary hypothesis: entrenched economic interests may use their de facto political power to constrain the supply of judicial decisions. We test the hypothesis by demonstrating that firms representing large, out-of-state economic interests have a low opinion of courts in states dominated by intra-state interests. Further, once controlling for the impact of intra-state interests, a state’s legal origin has no significant effect on court output.
10h00 – 10h30: Robert C. Ellickson (Yale Law School)
“Legal Constraints on Household Moves: Should Footloose Americans Envy the Rooted French?” [+/-] Show/Hide abstract
In a given year, a resident of the United States is roughly twice as likely as a resident of France to move to another permanent dwelling. This essay contends that differences in the property laws of the two nations — in particular, land use laws, landlord-tenant laws, and housing assistance policies — have significantly contributed to this disparity in residential mobility. The essay also puts forward a normative framework for analyzing the desirability of population movement. Legal policies that foster residential moves can enable individuals to better match themselves with, among others, a job, a dwelling, a set of housemates, a tenure arrangement, a neighborhood, and a municipality (à la Tiebout). A decision to move, however, may give rise to negative neighborhood externalities, such as the erosion of local social capital. In theory, although rarely in practice, people thus can move too often.
10h30 – 11h00: Coffee break
11h00 – 12h30 : Roundtable discussion
Introduced by Philip Keefer (The World Bank) and Jérôme Sgard (Sciences-Po / CERI)
12h30 – 14h00: Lunch break
Session 2: Collecting and using available data
Chair: Gary D. Libecap (USCB)
14h00 – 14h30: Eric Brousseau (EconomiX – University Paris Ouest), Sophie Harnay (EconomiX – University Paris Ouest) and Jean-François Sattin (University of Valenciennes)
“Building institutional indicators: Some theoretical perspectives and methodological propositions” [+/-] Show/Hide abstract
As empirical assessments of institutions through composite indexes have become one of the most dynamic trend of research in institutional economics, some contributors still worry about their lack of theoretical leakage and about the robustness of the computational technics mobilized. This paper first defines the gap between the institutional theory and the ones mobilized in institutional indicators. Precising what should be assessed by institutional measures, it derives then from the aggregation literature some propositions in order to check the validity of institutional composites.
14h30 – 15h00: Philip E. Keefer (The World Bank)
“Interpreting Polity: Collective action and political credibility as defining characteristics of Polity measures of political regimes” – [+/-] Show/Hide abstract
A large literature uses the subjective political measures of the Polity database and interprets these using Polity’s coding rules. This analysis identifies the objective political correlates of Polity variables, taken from the Database of Political Institutions, and concludes that alternative, and potentially more interesting interpretations, are warranted. Polity measures are, unsurprisingly, significantly associated with objective measures of competitive elections and political checks and balances. They are even more strongly related to two proxies for the ability of citizens to act collectively to influence political leaders: the years of continuous competitive elections and, especially, the age of the governing party at the time of the last leadership change. These findings point to alternative interpretations of three recent contributions to the literature, Bueno de Mesquita, et al.’s (2003) analysis of the selectorate; Goldstone, et al.’s (forthcoming 2010) analysis of factional partial democracies; and Epstein, et al.’s (2006) discussion of partial democracies and democratic transitions.
15h00– 15h30: Tom Ginsburg (University of Chicago Law School), José Antonio Cheibub (University of Illinois) and Zachary Elkins (University of Texas)
“Beyond Presidentialism and Parliamentarism: On the Hybridization of Constitutional Form” [+/-] Show/Hide abstract
The presidential-parliamentary distinction is a foundational one in the comparative study of law and politics, at the center of a large theoretical and empirical literature. This paper examines the categories themselves and their internal coherence. Though some debate has concerned the conceptualization of presidentialism, parliamentarism and semi-presidentialism, relatively little attention has focused on measurement. We use new data from a comprehensive survey of constitutions to develop measures of similarity across constitutions. We then examine whether provisions on executive-legislative relations are similar for constitutions within each of the classic categories. Although we find that within-type cohesion is low (at least by our expectations) for all three categories, we find measureable variation in cohesion across type, with presidentialist constitutions being the least cohesive of the three categories. The results also tell us a great deal about the structure of semi-presidentialism, a highly suspect intermediate category in some quarters of the literature. We find semi-presidentialism to be as internally consistent as parliamentarism, but also learn that constitutions in the semi-presidential category bear no noticeable difference from those in the parliamentary category. The measurement exercise thus has important implications for the conceptualization of political systems.
15h30 – 16h00: Coffee break
16h00 – 17h30: Roundtable discussion
Introduced by Stefan Voigt (University of Hamburg) and Erik Jensen (Stanford Law School)
Saturday, 3 October
Session 3: Building data through experiments
Chair: Benito Arruñada (Pompeu Fabra University)
9h00 – 9h30: Benito Arruñada (Pompeu Fabra University) and Marco Casari (Univesita di Bologna)
“How enforcement institutions affect impersonal exchange” – [+/-] Show/Hide abstract
In an experiment we study market outcomes under alternative incentive structures for third-party enforcers. Our transactions resemble anonymous credit transactions 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 exchange opportunities 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.
9h30 – 10h00: Jean Ensminger (California Institute of Technology)
“Getting to the Bottom of Corruption: An African Case Study of Decentralized Participatory Development” [+/-] Show/Hide abstract
Decentralized, participatory development is a rapidly growing mechanism for donor aid delivery. Put simply, this model (also referred to as community driven development), promises the empowerment of communities at the bottom of the development food chain. Communities are responsible for choosing projects, selecting leaders, implementing, and fiscally managing projects. This design promises bottom-up accountability by leveraging the power of local information and better aligned incentives to more effectively monitor agents and deliver the most from development aid. Virtually all major donors (bilateral country aid, NGOs, and the World Bank) have adopted this mechanism design. Yet despite the proliferation of this model, questions remain regarding its efficacy, and particularly its vulnerability to corruption.
This paper reports on a representative case study from a rural African community where we have the data to actually measure the losses from corruption, the impact of the project at the local level, and to examine the institutional mechanisms at the root of the problems. The details include individual-level demographics and social networks of participants in one community driven development project. We are able to trace the project benefits at the individual level and learn what socio-demographic variables are correlated with leadership in the project and level of economic benefit from the project. The data demonstrate that the project suffered significant losses due to corruption and had a net negative impact upon the community. While the project management was not captured by the elite, many of the project benefits were. This study attempts to understand why transparency is lacking, and how this relates to the failure of bottom-up community monitoring, which is the foundation on which the aid design is defended.
10h00 – 10h30: Roberto Galbiati (EconomiX – CNRS)
“Prison Conditions and Recidivism” – [+/-] Show/Hide abstract
This paper examines the impact of prison conditions on future criminal behaviour. The analysis is based on a unique dataset on the post-release behaviour of 25,000 Italian former prison inmates. We use an exogenous variation in prison assignment as a means of identifying the effects of prison overcrowding, deaths in prison, and degree of isolation on the probability of re-offending. We don’t find compelling evidence of (specific) deterrent effects of prison severity. The measures of prison severity do not affect negatively the probability of recidivism. Instead, all point estimates suggest that harsh prison conditions increase postrelease criminal activity, though they are not always precisely estimated.
10h30 – 11h00: Coffee break
11h00 – 12h30: Roundtable discussion
Introduced by Pablo T. Spiller (University of California, Berkeley) and Giorgio Zanarone (Colegio Universitario de Estudios Financieros)
12h30 – 14h00: Lunch break
Session 4: Testing theories
Chair: Pablo T. Spiller (University of California, Berkeley)
14h00 – 14h30: John Armour (University of Oxford), Simon Deakin (University of Cambridge), Viviana Mollica (University of Cambridge) and Mathias Siems (University of East Anglia)
“Law and Financial Development: What We are Learning from Time-Series Evidence” [+/-] Show/Hide abstract
The legal origins hypothesis is one of the most important and influential ideas to emerge in the social sciences in the past decade. However, the empirical base of the legal origins claim has always been contestable, as it largely consists of cross-sectional datasets which provide evidence on the state of the law only at limited points in time. There is now a growing body of data derived from techniques for coding cross-national legal variation over time. This time-series evidence is reviewed here and is shown to cast new light on some of the central claims of legal origins theory. Legal origins are shown to be of little help in explaining trends in the law relating to shareholder protection, although the classification of legal systems into English-, French- and German-origin “families” has greater explanatory force in the context of creditor rights. The widely-held view that increases in shareholder rights foster financial development is not supported by time-series analyses. More generally, the new evidence casts doubt on the suggestion that legal origins operate as an “exogenous” force, independently shaping both the content of laws and economic outcomes. It is more plausible to see legal systems as evolving in parallel with changes in economic conditions and political structures at national level.
14h30 – 15h00: Scott E. Masten (University of Michigan)
“Assessing Institutions: Lessons from the Empirical Analysis of Organizations” [+/-] Show/Hide abstract
The economic analysis of institutions and the economic analysis of organization have developed in parallel, with much of that development occurring within the New Institutional Economics. Especially on the theoretical side, the issues and concerns in these two literatures exhibit many overlaps and commonalities. The empirical literatures, however, have followed somewhat different paths. Whereas empirical research on institutions has tended to focus on measuring the performance implications of institutional alternatives, usually political and legal systems, the earliest and vast majority of empirical analyses of organizations have sought to explain observed variation in organizational form, particularly firm boundaries and contractual arrangements. The difference in focus is partly phenomenal: Organizations are generally less complex, more numerous, and less persistent than institutions, yielding both more variation and more data with which to explain it. My goal in this paper is to compare the approaches taken in these two literatures, with an emphasis on the insights and lessons that the now sizeable empirical literature on economic organization might offer for the empirical analysis of institutions.
15h00– 15h30: Henry E. Smith (Harvard Law School)
“Modularity In Property, Intellectual Property, and Organizations” [+/-] Show/Hide abstract
This paper argues that property, intellectual property, and organizations all employ modular structures in order to manage complex interactions between economic actors, and draws out the implications of a modular architecture for the measurement of institutions in the New Institutional Economics. Modularization involves breaking complex systems of interactions among actors into constituent parts, within which interactions are intense but between which defined interfaces constrain the flow of information. The right to exclude in the law of trespass is the most basic and familiar example. This paper combines and extends an information-cost theory of property and a modularity-based theory of the firm to explain the property-like aspects of organizations—asset partitioning, legal personality, stability and flexibility over time, team production and the residual claim—as stemming from modular structures that go beyond the familiar “nexus of-contracts.” Similarly, intellectual property can achieve information-cost savings through the indirectness and simplicity of basic exclusion rules. Especially with a nonrival resource like information, the right mixture of exclusion, governance, and open access remains an empirical question, but intellectual property, like property and organizational law, can be seen as a second-best solution of a complex coordination problem of attributing outputs to inputs. Rather than an exclusive focus on the economic effects of individual rules, their modular architecture requires an assessment of emergent properties of property and related systems.
15h30– 16h00: Coffee break
16h00 – 17h30: Roundtable discussion
Introduced by Andrew Schrank (University of New Mexico) and Jean François Sattin (University of Valenciennes)
The aim of this third workshop is to study new theoretical developments in the understanding of institutions and the law. In particular, it will examine (1) how these developments could encourage more appropriate methodologies to measure the structure and impact of institutions, especially thanks to a better understanding of transmission mechanisms; and (2) which types of institutional variables are more amenable to theory- and policy-relevant measurement. To put it another way, the aim of this third workshop is to exploit recent advances in (new) institutional economics to explore what should be done in quantitative approaches to institutions.
Each paper is allocated 30 minutes. Presenters can freely distribute this time between presentation and clarification questions.
Two types of paper will be given: papers on methodological issues that directly discuss some aspect central to the theme of the workshop, and papers presenting specific contributions use different methodologies to analyze institutions.
Consistent with the goal of the workshop, we will not to discuss the later category of papers the standard way but we will rather rely on them as starting points for the roundtable-like discussions following their presentation. Therefore, discussants are strongly encouraged to focus on methodological issues related to the theme of their session, using the papers presented in each session as starting points and illustration.
Universitat Pompeu Fabra
C/Ramon Trias Fargas, 25-27
Metro Line 4 (Station “Ciutadella-Vila Olímpica”)
The workshop will start on October 2nd at 9:00 am and will finish on October 3rd at 5:30 pm.
Basic format of Invited Paper sessions
- Presentation: 30 minutes
- Roundtable discussions: 15 minutes for each discussant; 1 hour for open discussion
With the support of