Volume XII, Issue 4 Spring-Summer 2005 THE POLITI’05CAL ECONOMIST · 2018-08-27 · chance...

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The Political Economist is a publication ofthe APSA Organized Section on PoliticalEconomy. Copyright 2005, American Po-litical Science Association. All rights re-served. Subscriptions are free to members ofthe APSA Section on Political Economy. Alladdress updates should be sent directly toAPSA.

Volume XII, Issue 4 Spring-Summer 2005

Co-Editors:Co-Editors:Co-Editors:Co-Editors:Co-Editors: William Bernhard, University of Illinois, Urbana-Champaign & J. Lawrence Broz, University of California, San Diego

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mancur olson Awardmancur olson Awardmancur olson Awardmancur olson Awardmancur olson AwardAnnouncementAnnouncementAnnouncementAnnouncementAnnouncement................4................4................4................4................4Joe OppenheimerJoe OppenheimerJoe OppenheimerJoe OppenheimerJoe Oppenheimer

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Scientific Progress in Quantitative Political Economy

FEAFEAFEAFEAFEATURETURETURETURETUREEssaysEssaysEssaysEssaysEssaysThe “Case” for Case Studies in Political Economy1

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Jim Granato*, Visiting Scientist and Political Science Program Director,National Science Foundation

Methodological practices exist inquantitative political economy thatundermine cumulative scientificprogress. Some methodologicalconventions, including the misuse of thet-statistic, ignore key scientific attributesavailable in prior quantitative work. Toreverse current methodological emphasis— and to build a falsifiable andcumulative science of political economy— I present a framework that builds onprior quantitative research. Thisframework stresses the linkage betweenformal and empirical tools and assists inconstructing falsifiable models andfinding underlying causal mechanisms.

Why is the use of quantitativemodels important for improving scientificunderstanding in political economy?1 Inher 2003 essay in The Political

Economist, Elisabeth Gerber definespolitical economy as “the study ofpolitical phenomena using the tools ofeconomic analysis, [emphasizing]…methodological approaches that buildupon an assumption of utilitymaximization” (p. 3). Gerber’smethodological focus gives the field ascientific definition. As Pearson (1957,2004) argues, “The unity of all scienceconsists alone in its method, not in itsmaterial…It is not facts themselveswhich make science, but the method bywhich they are dealt with” (p. 12).

With the attributes of shared (andimproving) standards, language, andtechnical-analytical competence, scienceprovides ideas such as order, cause, andchance (Bronowski 1978).2 These ideas

Lee J. Alston, University of Colorado, NBER

I. IntroductionSherlock Holmes was a deductive

theorist who relied on generalizing fromcase studies to form his theories aboutcriminal behavior. He is most known forhis powers of observation to derivehypotheses. His observations relied onboth qualitative and quantitativeevidence. Was Sherlock a theorist? Yes,by traditional standards for he attemptedto use each case study to make moregeneralizable hypotheses. I define a casestudy as one where the analyst hassufficient institutional detail, usuallyentailing some qualitative evidence suchas personal accounts or surveys whichthe analyst may supplement withquantitative tests. For political economydoes the use of case studies and

qualitative evidence make the work anyless scientific? Of course, this is arhetorical question. In a court roomevidence can be a smoking gun or it canbe circumstantial. Yet much of theliterature in political economy has leanedtowards a bias of favoring mathematicalmodeling and the application ofquantitative over qualitative evidence,presumably in trying to emulate the moremathematical techniques typically foundin economics. Modeling indeed can behelpful in clarifying our thinking but itcan also be premature. But, as SherlockHolmes would contend, unless weunderstand an issue we may be onlylooking for keys underneath thelamppost. As to the use of quantitative

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THE POLITICAL ECONOMIST

A Letter From theA Letter From theA Letter From theA Letter From theA Letter From the EditorsEditorsEditorsEditorsEditors

2

A Letter From theA Letter From theA Letter From theA Letter From theA Letter From theChairChairChairChairChair

THE POTHE POTHE POTHE POTHE POLITILITILITILITILITICCCCCAL ECAL ECAL ECAL ECAL ECONOONOONOONOONOMISTMISTMISTMISTMISTAmerican PoliticalAmerican PoliticalAmerican PoliticalAmerican PoliticalAmerican Political

Science AssociationScience AssociationScience AssociationScience AssociationScience Association

Political EconomyPolitical EconomyPolitical EconomyPolitical EconomyPolitical EconomySection Officers, 2004-2005Section Officers, 2004-2005Section Officers, 2004-2005Section Officers, 2004-2005Section Officers, 2004-2005

ChairChairChairChairChairElinor Ostrom, indiana

university, Bloomington

Secretary/TreasurerSecretary/TreasurerSecretary/TreasurerSecretary/TreasurerSecretary/Treasurerrob franzese, University of

Michigan, ann arbor

Executive CommitteeExecutive CommitteeExecutive CommitteeExecutive CommitteeExecutive Committeescott adler, university of

coloradojim fearon, stanford

universitynolan mccarty, princeton

universityburt monroe, michigan

state universitylayna mosley, university of

north carolina, chapel hillbeth simmons, harvard

university

Newsletter EditorsNewsletter EditorsNewsletter EditorsNewsletter EditorsNewsletter Editorswilliam bernhard,

university of illinois,urbana-champaign

J. Lawrence Broz, universityof california, san diego

Newsletter AssistantNewsletter AssistantNewsletter AssistantNewsletter AssistantNewsletter AssistantAmanda Harris, University

of California, San Diego

Dear Members of the Political EconomySection:

The next meeting of our Section willbe at the APSA meetings on Saturday,September 3 at noon. It will be a lunchmeet ing and sandwiches will be pro-vided. An important agenda item is theannounce ment of the awards given eachyear to the best dissertation, best book,and best paper given at last year’s meet-ing. We will also discuss plans for ourSection panels at the 2006 meetings. Ifyou have any ideas on this topic, pleasesend them now to Rick Wilson([email protected]) or Liz Gerber([email protected]). If there are any

other items you would like to suggest forthe agenda, please send a note to NicoleTodd ([email protected]) in the next twoor three weeks (I will be away for most ofthe summer but Nicole always knows howto get messages through to me).

I encourage you to attend as manyof our panels as feasible at APSA. Notonly has William Clark worked hard toorganize an exciting set of panels, butour quota of panels for 2006 depends onour attendance at our panels in 2005.

Sincerely,Lin OstromChair of the Political Economy Section

Dear Readers:To complement your summer

reading, we’ve included two featureessays on research methodologies in thisissue of The Political Economist. In thefirst essay, economist Lee Alston(Director of the Research Program onEnvironment and Behavior at theUniversity of Colorado at Boulder andspecialist on agricultural tenancy andresource management in the U.S. andLatin America) offers his thoughts onthe role of qualitative research in politicaleconomy. In the second, politicalscientist Jim Granato (outgoing PoliticalScience Program Director at the NationalScience Foundation and specialist on thepolitics of macroeconomic performance)proposes a return to the fundamentalscientific objectives of quantitativemethodology.

Some might find it ironic that Alston,the economist, sings the praises ofqualitative work while Granato, thepolitical scientist, calls for even morerigorous quantitative analysis. But wewere struck by the underlying similaritiesbetween the two essays. Both believethat current work in political economyplaces too much weight on correlativetechniques rather than the empiricalevaluation of causal mechanisms. Thatis, both call for a renewed emphasis on

developing theoretical explanations and,in turn, the use of appropriate techniquesto evaluate the mechanisms than linkcause and effect. Moreover, bothcontend that the research process shouldinvolve a dialogue between theory anddata, rather than being purely deductiveor inductive. All in all, we think theessays make for compelling summerreading.

Also in this issue, we recognize theachievements of this year’s awardrecipients: Christopher Adolph (HarvardUniversity), winner of the Mancur OlsonAward for his best dissertation in politicaleconomy, and Fiona McGillivray (NewYork University) recipient of the WilliamH. Riker Award for best book in politicaleconomy. Joe Oppenheimer, chair of theOlson Award Committee, summarizesAdolph’s excellent dissertation, "TheDilemma of Discretion: Career Ambitionsand the Politics of Central Banking."Steph Haggard, chair of the RikerCommittee, comments on McGillivray’sextraordinary book, Privileging Industry:the Comparative Politics of Trade andIndustrial Policy (Princeton UniversityPress).

Finally, the issue containsscheduling information about political

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economy events at the upcoming APSAmeetings, including the politicaleconomy panels assembled by programchair Bill Clark and the political economybusiness meeting (Saturday, September3, at noon). Please plan to attend as manyof these events as possible.

We look forward to seeing you inWashington. Have a happy summer!

Bill [email protected] [email protected]

can be leveraged through the use ofmodels that describe hypothetical worldswhose predictions have testablepotential.

If models are central to the scientificprocess, then how do we construct them?Valid models make use of both deductiveand inductive inference. Deductiveinference relies on the power of logicwhere “The argument is so constructedthat if the premises are true the conclusionmust also be true” (Reichenbach 1951:37). Yet, this attribute of internal validityand, by extension, order, falls short ofallowing discrimination from otherlogically consistent yet competingmodels. Deductive inference, thereforecannot “establish a theory of predictionand must be supplemented by aninductive logic” (Reichenbach 1951: 82).3

When deductive inference is“supplemented”4 by inductive inferencetheir combination:

"…enables us to associateprobabilities with propositions and tomanipulate them in a consistent, logicalway to take account of new information.Deductive statements of proof anddisproof are then viewed as limiting casesof inductive logic wherein probabilitiesapproach one or zero, respectively(Zellner 1984: 5)."

Quantitative models have a naturalaffinity with both inductive anddeductive inference; therefore, they areof great importance to the practice ofscientific inquiry. But, to what end shouldthese quantitative models be used?Which scientific criteria give the mosttraction in the use of order, cause, andchance?

One distinguishing feature ofscientific practice is that hypothesesmust be refutable. Refutation is essentialto build a cumulative science. Refutableresearch requires that a methodologyrelate cause and effect in ways that areidentifiable and that the identifiedrelations are invariant.

When applied to quantitativemodels, the terms identification oridentifiability mean that a model

possesses sufficient information so thata unique and valid inference can be drawnfrom a particular parameter (see, forexample, Koopmans 1949, Manski 1995).Some researchers treat the issue ofsimultaneity and identification as oneand the same. However, in this essay, Iuse identification in a broader sense,encompassing not only issues such assimultaneity, but also a common senseconcern that a parameter reflects therelation the researcher asserts.5

The terms invariant or invariance,when applied to quantitative models,center on whether a relation (signified bya parameter) remains constant in the faceof a treatment (or policy) shift (seeMarschak 1947, 1953, Lucas 1976). Forinstance, in quantitative politicaleconomy it is often the case thatparameter estimates are based on pastvalues, but when policies change, amodel should account for the possibilitythat the public’s expectations andbehavior may change as well. Failure toprovide for this circumstance riskssystematic bias in model predictions.

Since quantitative political economycannot be studied in a controlledenvironment, quantitative models aretypically refuted in a probabilistic manner.To be even more specific, a need existsfor a quantitative indicator that can serveas a reference for falsification, but alsoprovide information on identification andinvariance. Few indicators exceed theapplication and importance of a t-statistic, defined as the ratio, (b/(s.e.(b))).The t-statistic allows for probabilisticstatements (i.e., statistical significance)and its numerator (b) containsinformation pertaining to identificationand invariance.

Although the t-statistic has theseimportant attributes, it has often beenmisused. While the concern with TypeI and Type II errors and the identificationof (b) should be of prime importance,much of quantitative political economicresearch pays scant attention to thesematters. Instead, the focus centers onthe size of the t-statistic and whether one

Granato Feature Essay...continued from page 1

From the Editors...continued frompage 2

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can get significant results through ad-hoc specification and manipulation of thestandard error (s.e.(b)).

When quantitative politicaleconomists give priority to manipulatingstandard errors over identifying invariantparameters they are effectivelydemonstrating that the scientific idea oforder is secondary to the idea of chance.Yet even the idea of chance iscompromised because manipulation ofstandard errors involves using modelmisspecification (and error) as acorrective device. It is akin to paintingover a crack on a bridge. Suchnonfalsifiable methodological practicesimpede the accumulation of knowledge.

I will show how prior work can informcurrent work in quantitative politicaleconomy by examining how the idea anduse of identification and invariancedeveloped in quantitative practice.Many ideas and institutions influencedthe development of quantitative politicaleconomy, including the National Bureauof Economic Research (NBER), the SocialScience Research Council (SSRC), theEconometric Society, the RochesterSchool, and the Political MethodologySociety. However, I focus on themethodological contributions of theCowles Commission, a group ofquantitatively inclined economists.


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THE POTHE POTHE POTHE POTHE POLITILITILITILITILITICCCCCAL ECAL ECAL ECAL ECAL ECONOONOONOONOONOMISTMISTMISTMISTMISTmancur olson award announcementmancur olson award announcementmancur olson award announcementmancur olson award announcementmancur olson award announcement

best dissertation in political economy published during the past year

Congratulations are due to Christopher Adolph and Harvard University! The Political Economy Section of the AmericanPolitical Science Association has created an award in Mancur Olson’s honor for the best dissertation in political economygranted during the past year. This year’s Olson committee had Professor Joe Oppenheimer, chair (University of Maryland),Professor Scott Gehlbach (Assistant Professor, University of Wisconsin), and Gerry Mackie (Assistant Professor, Universityof Notre Dame) as members. We selected, unanimously, Christopher Adolph’s dissertation, "The Dilemma of Discretion:Career Ambitions and the Politics of Central Banking," nominated by Harvard University, to be the recipient of the prize. Theprize is scheduled to be presented by the Political Economy Section, at this year’s APSA meeting in Washington, D.C.

Christopher Adolph’s nicely written and clearly presented dissertation should be of interest to those concerned with thefunctioning of governmental bureaucracies in general, but especially those focused on the independence and policies ofcentral banks. Adolph approaches the subject by considering the somewhat bifurcated career incentives of central bankers inthe public or political and private or business sectors. Noting that both sectors have incentives to make ‘shadow’ offers ofcareer paths in exchange for responsiveness to their interests, he suggests an interesting theoretical model that predictssubstantial variation in central bank monetary policy as a function of the career interests of the bankers. This is tested bysubstantial data from the developed countries with independent central banks. The dissertation also contains seriouslyinnovative graphic representations of the data.

Adolph builds on work in the political economy of monetary policy, where since Rogoff (1985) scholars have argued thatdelegation of monetary policy to a conservative and independent central bank can avoid the time-consistency problems thatlead to excessive inflation. Central bank independence has been much-studied; the extent to which central bankers areconservative (whether granted independence or not) has not. To understand why this is an important omission, consider theimpact of central bank independence in post-communist Russia: Viktor Gerashchenko, central bank chairman in the early1990s, printed money with abandon. The problem was not pressure from the government - the central bank was quiteautonomous - but the preferences of the central banker (an old communist, Gerashchenko apparently did not believe that aloose monetary policy could lead to inflation). Adolph argues that the preferences of central bankers can be read from theirprevious career experience (financial sector, government bureaucrat, etc.) due to socialization, and from their post-central bankcareers due to incentive effects while in the central bank. He gathers what appear to be excellent and original data on theformer, though relatively little data on the latter. Using the former, he has many nice and intuitive results, showing that thecareer experience of central bankers in both developed and less developed countries matters for monetary policy, economicoutcomes, etc. Put simply, the career experiences (preferences, if we believe the story) of central bankers both exert a strongindependent effect after controlling for central bank independence, and interact with central bank independence in determin-ing outcomes. Methodologically, Adolph offers what are apparently original methods for dealing with “compositional data”:variables which sum to one (as for example, in this dissertation, when the proportion of one’s career in various sectors mustsum to one).

We also would like also especially to commend the dissertation by Edmund Malesky, nominated by Duke University.Malesky’s dissertation is a very serious attempt to integrate integrate statistical methods, case studies, and basic formaltheory to gain leverage over the understanding of economic development in autocratic countries. He explores how foreigndirect investors bargain with local politicians to create a better environment for development and how this tends to shift powerto localities from the central autocrats. His case study is Vietnam but he also uses data from other countries.

The committee received seven dissertations in all and collectively we must say that they reflected a breadth, depth andquality of scholarship that made the task of reading rewarding, but the task of selection quite difficult.

For the entire committee,Sincerely yours,Joe Oppenheimer, University of [email protected]

Spring-Summer 2005 5

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The Organized Section on Political Economy

Every three years, the American Political Science Association confers the James Madison Award to an “American politicalscientist who has made a distinguished scholarly contribution to political science.” This year’s award committee, comprisedof Elisabeth Gerber (Michigan), Daniel Carpenter (Harvard), and Michael Jones-Correa (Cornell), has selected Elinor Ostrom,citing her contributions to the study of collective action, resource management, property rights, and institutional design.Previous recipients of this prestigious award include: Robert A. Dahl (1978), Gabriel A. Almond (1981), Herbert Simon (1984),E. Pendleton Herring (1987), James Q. Wilson (1990), Sidney Verba (1993), Philip Converse (1996), Kenneth N. Waltz (1999), andDavid Mayhew (2002). The award will be presented at the APSA Annual Meeting Awards Ceremony.

best book in political economy published during the past year

william riker award announcementwilliam riker award announcementwilliam riker award announcementwilliam riker award announcementwilliam riker award announcement

Each year, the Political Economy section gives an award for the best book in the field published during the previous year.This year, the selection committee was chaired by Stephan Haggard (University of California, San Diego) and included SarahBrooks (Ohio State University) and John Huber (Columbia University).

The recipient of the 2005 Riker Award is Fiona McGillivray for Privileging Industry: the Comparative Politics of Tradeand Industrial Policy (Princeton University Press, 2004). McGillivray’s book focuses on trade policy, but is nested in abroader theory of the politics of redistribution. Her theory combines attention to industrial and electoral geography with aconsideration of the incentives facing politicians in different electoral systems. In doing so, she moves beyond existinginstitutional models of trade policy and provides fresh insights into broader debates in the field, such as the conditions underwhich politicians will reward their base as opposed to targeting swing voters. The theory is highly portable and is tested ininnovative ways, including through the use of stock prices to capture the rents associated with political change.

The committee also gave honorable mention to two other excellent pieces of political economy. Georg Vanberg’s ThePolitics of Constitutional Review in Germany (Cambridge University Press, 2004) provides a tightly-argued theoreticalaccount of the process of constitutional review. Vanberg underscores the critical importance of wider political support for theindependence of the judiciary. Mikhail Filippov, Peter C. Ordeshook and Olga Shvetsova offer a rich account of the politics offederalism in Designing Federalism: A Theory of Self-Sustainable Federal Institutions (Cambridge University Press). De-signing Federalism questions the assumption that the stability of federal systems can be attributed to constitutional bargainsand rules alone, and returns to Riker’s emphasis on parties and party systems as a crucial determinant of equilibrium in federalsystems.

The next issue of The Political Economist will provide a more detailed consideration of McGillivray’s work.

Congratulates

ELINOR OSTROMELINOR OSTROMELINOR OSTROMELINOR OSTROMELINOR OSTROM

2005 James Madison Award Winner

The recipients of the best paper in political economy presented at the 2004 APSA meeting are William Bernhard (Univer-sity of Illinois) and David Leblang (University of Colorado) for their paper, “When Markets Party: Stocks, Bonds and CabinetFormations.” This paper has also been awarded APSA’s Franklin L. Burdette Pi Sigma Alpha Award for the best paperpresented at the 2004 annual meeting. The runner-up in the political economy section is Sarah Brooks (Ohio State University),“A Competing Risks Model of Structural Pension Reform: Adoption and Diffusion of Alternative Paradigms.” Please see theWinter 2005 issue of this newsletter for award committee chair Layna Mosley’s description of these fine papers.

best paper in political economy award announcementbest paper in political economy award announcementbest paper in political economy award announcementbest paper in political economy award announcementbest paper in political economy award announcement presented at the 2004 apsa meeting


6 THE POLITICAL ECONOMIST

ANNUANNUANNUANNUANNUAL MEETING OAL MEETING OAL MEETING OAL MEETING OAL MEETING OF THE AF THE AF THE AF THE AF THE AMERIMERIMERIMERIMERICCCCCAL POAL POAL POAL POAL POLITILITILITILITILITICCCCCAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIATITITITITION 2005ON 2005ON 2005ON 2005ON 2005

Detailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy Panels

6-1 The Political Economy of the StateDate: Thursday, Sep 1, 10:15 AM/Co-sponsored by 11-1Chair: Scott G. Gehlbach, [email protected], University of

Wisconsin, MadisonCo-Chair: Allen D. Hicken, [email protected], University of Michigan,

Ann ArborAuthor(s): Why Are Poor Countries Civil-War Prone?, James D. Fearon,

[email protected], Stanford UniversityAre Formal and Informal Institutions Complements or Substitutes?

Evidence from a Survey of Russian Business Elites, Timothy Frye,[email protected], Ohio State University

Contract Enforcement and Predation, Catherine Hafer, [email protected], New York University

A Theory of State Formation, Scott G. Gehlbach, [email protected], University of Wisconsin, Madison

Discussant(s): Scott G. Gehlbach, [email protected], Universityof Wisconsin, Madison

6-2 Strategic Financial LiberalizationDate: Friday, Sep 2, 10:15 AM/Co-sponsored by 16-1Chair: Chad Rector, [email protected], George Washington UniversityAuthor(s): The Clash of Domestic Sectors in Stock Market Liberalization,

Clint Peinhardt, [email protected], University of Michigan, AnnArbor

International Coordination, Domestic Politics, and Capital ControlsLiberalization: France, 1960-1985, Kara Heitz, [email protected],George Washington University & Scott L. Kastner, [email protected], University of Maryland

The Politics of Time Horizons: Strategic Dynamics of Capital Account andTrade Liberalization in Contemporary Latin America, Sarah M.Brooks, [email protected], Ohio State University &Marcus J. Kurtz, [email protected], Ohio State University

Democracy, Autocracy, and Timing of FDI Restriction Liberalization, QuanLi, [email protected], Pennsylvania State University & Dale L.Smith, [email protected], Florida State University &Joseph K. Young, [email protected], Florida StateUniversity

Discussant(s): Andrew Sobel, [email protected], WashingtonUniversity

6-3 Roundtable Discussion of Douglass North’s Understanding theProcess of Economic Change

Date: Saturday, Sep 3, 10:15 AM/Co-sponsored by 13-1Chair: Paul S. Edwards, [email protected], George Mason UniversityParticipant(s): Elinor Ostrom, [email protected], Indiana University,

BloomingtonMathew D. McCubbins, [email protected], University of California,

San DiegoBarry R. Weingast, [email protected], Stanford UniversityPeter J. Boettke, [email protected], George Mason UniversityDiscussant(s): Douglass C. North, [email protected],

Washington University

6-4 Distributive Politics from Comparative PerspectivesDate: Saturday, Sep 3, 8:00 AM/Co-sponsored by 11-2Chair: Diana Evans, [email protected], Trinity CollegeAuthor(s): Distributive Politics in Postwar Italy, Miriam A. Golden,

[email protected], University of California, Los Angeles & LucioPicci, [email protected], Facolta di Scienze Politiche

Regionalism and Redistribution in South Korea, Yusaku Horiuchi,[email protected], The Australian National University &Seungjoo Lee, [email protected], Chung-Ang University

Electoral Rules and Pork-Barrel Spending: Evidence from the RussianDuma, Jana Kunicova, [email protected], California Institute ofTechnology

Testing Theories of Distributive Politics and Pork Barrel Spending in

Legislatures, Michael C. Herron, [email protected],Dartmouth College & Alan Edward Wiseman, [email protected],Ohio State University

Discussant(s): Diana Evans, [email protected], Trinity CollegeCo-Discussant(s): Jonathan Rodden, [email protected], Massachusetts

Institute of Technology

6-5 The Political-Historical Determinants of Current Economic OutcomesDate: Friday, Sep 2, 8:00 AM/Co-sponsored by 12-1Chair: Shanker Satyanath, [email protected], New York UniversityAuthor(s): Democracy, Historical Legacies, and Primary Education in

Africa, David Stasavage, [email protected], London School ofEconomics

The Historical Determinants of Long-Run Macroeconomic Stability ,Shanker Satyanath, [email protected], New York University

Democracy, Credibility and Clientelism, Philip Keefer, [email protected], The World Bank

Political Democracy and Exchange Rate Policy: The View from History,David Leblang, [email protected], University of Colorado,Boulder

Discussant(s): Jeffry A. Frieden, [email protected], Harvard UniversityCo-Discussant(s): Leonard Wantchekon, [email protected],

New York University

6-6 The Comparative Political Economy of Advanced Industrial CountriesDate: Saturday, Sep 3, 10:15 AM/Co-sponsored by 11-3Chair: Mark Hallerberg, [email protected], Emory UniversityAuthor(s): Globalization, Policy Diffusion, and Welfare State Retrenchment

in the Capitalist Democracies, 1970-2001, Duane H. Swank,[email protected], Marquette University

The Role of the Political Party System on Partisan Monetary Policies:Why Coalition Governments Deliver Lower and More StableInflation than Single Party Governments, Despina Alexiadou,[email protected], European University Institute

Left, Right and Taxes: What Differences Does Partisanship Make?, JeffreyF. Timmons, [email protected], Instituto Tecnologico Autonomode Mexico (ITAM)

Privatization and Corporate Governance: The Effect of Privatization onShareholder Rights Laws in the Developed Economies, WilliamMabe, [email protected], Rutgers University

Balancing Competing Interests in American Regional Governance,Elisabeth R. Gerber, [email protected], University of Michigan,Ann Arbor & Clark C. Gibson, [email protected], University ofCalifornia, San Diego

Discussant(s): Christopher Way, [email protected], Cornell University

6-7 The Comparative Political Economy of Developing CountriesDate: Thursday, Sep 1, 2:00 PM/Co-sponsored by 11-4Chair: Robert R. Kaufman, [email protected], Rutgers University, New

BrunswickAuthor(s): The Unintended Consequences of Decentralization: Armed

Clientelism in Columbia, Kent Eaton, [email protected], The Naval Postgraduate School

Variations in National Economic Performance: Democracies versusAutocracies, Siddharth Chandra, [email protected], Universityof Pittsburgh & Nita Rudra, [email protected], University of Pittsburgh

Are Prime Ministers and Proportional Representation Better for the Poor?:Institutional Causes of Income Inequality in LDCs, Gregory Love,[email protected], University of California, Davis

Electoral Structure, Social Cleavages and the Size of the Party System: ADistrict Level Analysis of National Parliamentary Elections in India,Ira Parnerkar, [email protected], University of Chicago

Unstable Politics: Fiscal Space and Electoral Volatility in the IndianStates, Irfan Nooruddin, [email protected], The Ohio StateUniversity

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THE POTHE POTHE POTHE POTHE POLITILITILITILITILITICCCCCAL ECAL ECAL ECAL ECAL ECONOONOONOONOONOMISTMISTMISTMISTMISTANNUANNUANNUANNUANNUAL MEETING OAL MEETING OAL MEETING OAL MEETING OAL MEETING OF THE AF THE AF THE AF THE AF THE AMERIMERIMERIMERIMERICCCCCAL POAL POAL POAL POAL POLITILITILITILITILITICCCCCAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIAAL SCIENCE ASSOCIATITITITITION 2005ON 2005ON 2005ON 2005ON 2005

Detailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy PanelsDetailed Listing of Political Economy Panels

Discussant(s): Sebastian M. Saiegh, [email protected], University ofPittsburgh & Robert R. Kaufman, [email protected], RutgersUniversity, New Brunswick

6-8 The Politics of International Money and FinanceDate: Saturday, Sep 3, 8:00 AM/Co-sponsored by 16-2Chair: Thomas D. Willett, [email protected], Claremont Graduate

UniversityAuthor(s): Dropping Zeroes and Gaining Credibility? Currency

Redenomination in Developing Nations, Layna Mosley,[email protected], University of North Carolina, Chapel Hill

International Monetary Policy Transmission Since the Introduction of theEURO: A Spatial Panel Data Analysis, Vera Eva Troeger,[email protected], Max-Planck-Institute

Risky Business: A Pooled Cross-Sectional Time-Series Analysis of theRelationship between Investor Risks and Foreign Direct InvestmentFlows, Jo Jakobsen, [email protected], Norwegian Universityof Science and Technology

Government Courtship of Migradollars: International Migrants’Remittances and Policy Intervention in the Case of ContemporaryMexico, Els de Graauw, [email protected], University ofCalifornia, Berkeley & Regine Amy Spector, [email protected], University of California, Berkeley

Discussant(s): Thomas D. Willett, [email protected], ClaremontGraduate University

Co-Discussant(s): Hilton L. Root, [email protected], ClaremontGraduate University

6-9 Commitment, Conservatism, Consensus and CorporatismDate: Thursday, Sep 1, 4:15 PMChair: William T. Bernhard, [email protected], University of Illinois,

Urbana-ChampagneAuthor(s): Three Simple Tests of Career Influences on Monetary Policy,

Christopher Adolph, [email protected], University ofWashington

The Force of Economic Ideas: Decision-making in the Federal Open MarketCommittee, Cheryl M. Schonhardt-Bailey, [email protected], London School of Economics & Political Science& Andrew Bailey, [email protected], Bank ofEngland

The Politics of Investment: Partisanship, Bargaining, and Commitment,Pablo Martin Pinto, [email protected], Columbia University &Santiago Miguel Pinto, [email protected], West VirginiaUniversity

Why Corporatism and Consensus Democracy Do Not Matter For Socio-Economic Performance, Noël P. Vergunst, [email protected],Vrije Universiteit Amsterdam

Discussant(s): Robert J. Franzese, [email protected], University ofMichigan, Ann Arbor

Co-Discussant(s): William T. Bernhard, [email protected], University ofIllinois, Urbana-Champaign

6-10 The Political Economy of DevelopmentDate: Friday, Sep 2, 4:15 PM/Co-sponsored by 12-2Author(s): The Economic Cost of Democratic Responsibility? Cabinet

Volatility and Stock Market Response in New PresidentialDemocracies, Chiwook Kim, [email protected], Universityof Texas-Austin

Overlapping Sectors: Botswana’s Inoculation Against the Dutch DiseaseAmy R. Poteete, [email protected], University of New Orleans &Andres Marroquin, [email protected], George Mason University

Natural Resources and Regime Stability: The Political Resource CurseRe-Examined, Kevin Morrison, [email protected], DukeUniversity

Liberal States and Fiscal Contracts, James E. Mahon, [email protected], Williams College

The Evolution of an Economic and Political Middle Class in TransitionCountries, John E. Jackson, [email protected], University ofMichigan, Ann Arbor & Daniel Berkowitz, [email protected],University of Pittsburgh

6-11 Domestic Politics, Integrated MarketsDate: Saturday, Sep 3, 2:00 PMAuthor(s): Traders, Voters, and Teachers: How Openness and Democracy

Affect Education Expenditure, Ben William Ansell, [email protected], Harvard University

Having their Cake and Eating it Too?: A Closer Look at the Effects ofEconomic Openness and Partisanship on Government Fiscal Policy,Nicholas Charron, [email protected], Florida State University & JosephTrafton, [email protected], Denver University

How do Political Institutions Matter for Economic Globalization, Nam TaePark, [email protected], Texas A&M University

How Common is the Common External Tariff?: Domestic Influences onEuropean Union Trade Policy, Sean D Ehrlich, [email protected],SUNY, Buffalo

Discussant(s): Mark Andreas Kayser, [email protected],University of Rochester & Oxford University

6-12 Elections and the EconomyDate: Sunday, Sep 4, 8:00 AMChair: Robert Grafstein, [email protected], University of GeorgiaAuthor(s): “More is Better” or “Who Gets What”?, Suzanna Linn DeBoef,

[email protected], Pennsylvania State UniversityPromises, Policies, and Voter Responses, Guy D. Whitten, whitten@

polisci.tamu.edu, Texas A&M UniversityA Cross-National Comparison of Political Business Cycles: Are They More

Prevalent in Developing Countries than Developed Countries?,Jonathan Krieckhaus, [email protected], University ofMissouri, Columbia

Electoral Rules, Intra-Party Politics, and Political Business Cycle inDistributive Policy, Kenichi Ariga, [email protected], University ofMichigan, Ann Arbor

Discussant(s): George A. Krause, [email protected], University ofSouth Carolina

Co-Discussant(s): William R. Keech, [email protected], CarnegieMellon University

6-13 The Economic Consequences of Political InstitutionsDate: Sunday, Sep 4, 8:00 AM/Co-sponsored by 11-9

6-14 The Domestic Effects of International Trade Agreements: PoliticalPreferences, Legal Capacity, Trade Volatility and TransparencyDate: Sunday, Sep 4, 10:15 AM/Co-sponsored by 16-11

6-15 The Politics of Exchange RatesDate: Saturday, Sep 3, 4:15 PM/Co-sponsored by 16-15

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Alston Feature Essay...continued from page 1

continued on page 10

versus qualitative evidence, neither formis necessarily superior over the other. Itdepends on the question posed by theanalyst and the evidence available. Iwould rather have weaker evidence onan extremely interesting issue thanirrefutable evidence on a trivial issue.Moreover the use of qualitative evidencecoupled with quantitative evidence maymake the quantitative evidence morecompelling.

Unquestionably the field of politicaleconomy practiced by economists andpolitical scientists has gravitated towardsrecognition of the important role ofinstitutions for shaping outcomes. Thecatch is that institutions are difficult toquantify. But this does not mean that theyare any less important. Suppose wedefine institutions following DouglassNorth as the “rules of the game in asociety or…the humanly devisedconstraints that shape humaninteraction” [North (1990): 3]. One of themost important institutions shapingpolitical and economic outcomes is therule of law but there is no consensus,certainly within law schools, as to justwhat is meant by the rule of law, e.g. itdoes not appear on the state bar exams.As a result we have a variety of indicesmanufactured by think tanks that areconstructed ultimately on a somewhatsubjective basis and awarded a numericscore. Economists then plug a measureof the rule of law into a growth equation,and voila we find that rule of law isimportant in promoting economic growth.I find the result neither surprising nor veryuseful for academics or policymakers. Forexample are we to surmise that if only Chadhad the rule of law of Hong Kong that itwould be a superstar on the economicgrowth charts? I very much doubt thatwould happen, but, more importantly, Idoubt that it could happen and as such isnot helpful for the policy arena. In orderto ascertain the impact of rule of law theanalyst needs much more information,generally qualitative, about the norms insocieties that built and sustain the rule of

law. A more interesting question is: howdo countries acquire the rule of law or insome cases lose it? Here I do not believethat quantitative evidence alone is ofmuch help, but case studies andqualitative evidence often in conjunctionwith quantitative evidence can be.

My lament about the use, or in manycases abuse, of quantitative evidence isthat it typically entails running aregression with the result of telling us verylittle that we do not already know, at leastin the case of institutions.2 Regressionsthat tell us what we already know aboutaverage behavior nevertheless havemerits.3 The first is that they can tell usabout magnitudes, e.g., how important ina quantitative sense is the variable x inexplaining outcome y? The second, andmore underappreciated, role of regressionanalysis is to identify outliers. Outliersare interesting intellectually because theydeviate from the predicted model andtherefore the measures that we usedcannot explain the behavior of the outlier.Understanding outliers, is in some sense,where the action may be, at least infurthering our understanding ofinstitutions. This is where the use ofqualitative evidence and case studiescome in.

In the economics profession at largeand to a lesser degree in political sciencethe use of case studies is not the norm.Case studies may be frowned upon assimply individual narratives and as suchnot generalizable, which is one of thecriteria for good scientific research. Themore general the result, the better thetheory, so the scholar needs to take carewhen selecting the case study to be awareof the “big picture.” Indeed I advocatethe use of case studies because it allowsthe analyst to isolate the impact of atheoretical concept in a more detailed andpotentially more compelling manner. Inother words case studies can be tools fordeveloping models which can then betested with both qualitative andquantitative evidence. Case studies areespecially important for the new

institutional economics because itenables us to analyze both thedeterminants and consequences ofinstitutions and institutional change.

Case studies in the new institutionaleconomics (NIE) are also known as“analytic narratives.”4 The term“analytic” conveys the use of atheoretical framework or set of theoreticalconcepts, and the term “narrative”conveys the use of historical qualitativeevidence.5 Though narratives usehistorical evidence, including at times,accounts by individuals, the style alsoendorses quantitative evidence includingthe use of econometric tests. One of thedifferences between the use ofquantitative evidence in case studies asopposed to many broader analyses is thatthe scholar typically has a very thoroughunderstanding of the issue and the dataused in the analysis. In some cases theanalyst may have collected the data, as istypically the case for anthropologists aswell as some development economists.Economic historians often must createtheir data sets. Scholars working in thefield of case studies may also have reliedon surveys and interviews as input forthe study. Interviews can be extremelyhelpful for the scholar to more thoroughlyunderstand an issue before embarking onmodeling and testing. Surveys can becrucial for testing some hypothesesbecause of an absence of data. Thoughsurveys can have their biases, we havecome a long way, largely due to workoutside of standard economics, in ourability to conduct a survey andunderstand the potential biases.6 Thedeep understanding of data and itslimitations is important because thestatistical work then becomes morebelievable if one has faith in the underlyingdata set.

Narratives or case studies in the NIEhave taken two branches, micro and macro.“Micro” studies in the NIE preceded“Macro” studies partially because theytended to hold constant the broader




Granato Feature Essay...continued from page 3Created in the 1930s, the CowlesCommission was designed “to foster thedevelopment of logical, mathematical,statistical methods of analysis forapplication in economics and relatedsocial sciences.”6 I contend that, despitesome important shortcomings, themethodological work of the CowlesCommission directly informs cumulativequantitative practice because itemphasizes issues such as identificationand invariance probably more than anyother social science entity.7

The Cowles Commission and CumulativeQuantitative Practice

The contributions of the CowlesCommission rest, in part, on a scientificvision that involved merging formal andapplied statistical analysis. The basis forthis linkage was the idea that randomsamples were governed by some latentand probabilistic law of motion (Haavelmo1944, Morgan 1990). Further, this viewmeant that formal models, when relatedto an applied statistical model, could beinterpreted as creating a sample draw fromthe underlying law of motion. A well-grounded test of a theory could beaccomplished by relating a formal modelto an applied statistical model and testingthe applied statistical model. The Cowlesmethodology was seen, then, as a validrepresentation and examination ofunderlying processes in existence.8

The Cowles Commissioncontributed to the rise of econometricmethodology in many ways.9 The Cowlesmethodology created new research aimedat determining valid inference in responseto these demands, particularly the issuesof identification and invariance. For thefirst issue, identification, rules (i.e., rankand order conditions) were devised sothat an equation of a model could revealone and only one set of parametersconsistent with both the model and theobservations (see, for example,Koopmans 1949).

A second issue involved theinvariance of a (structural) relation. If an

underlying mechanism is constant in thepast and future, then the path of therelevant variable(s) will be predictablefrom the past, apart from randomdisturbances (see, for example, Marschak1947, 1953). However, there was noconcerted attempt to assure thiscondition and this failure would inviteboth theoretical and empirical criticisms.

By the mid-1960s the Cowlesapproach was a standard quantitativeapproach in economics. However, theapproach came under criticism in the early1970s. Not only were the quantitativemodels forecasting poorly, but theapproach was failing to appropriatelyaddress the issues of identification andinvariance.10 Indeed, the poor predictivepower of the quantitative modelsoccurred because of the failure toaccount for identification and invariance.

One source of this problem was thatthe identification “rules” were becomingends in themselves. This practicereached the point where researchers wereusing incredible theoretical restrictionsthat compromised basic theory (Sims1980). As an alternative Sims developedstatistical models that changed theemphasis of inference from individualcoefficients to the dynamic time seriesproperties of an unrestricted (by theory)system of equations (i.e., VectorAutoregression (VAR)).11

Additionally, some researcherscomplained that the Cowles approachinsufficiently accounted for the conceptof invariance. Lucas (1976) argued thatthe parameters of econometric models(which were based in part on past data)are unlikely to remain stable underalternative treatments (policies). Aworking assumption was that once thepublic’s expectations were included, itwas not clear their behavior would remaininvariant to policy shifts when the policyshifts presented a new menu of costs.Lucas proposed a solution requiring thattheory specify the relations contained instructural models be invariant to expectedchanges in exogenous forces.

Kydland and Prescott (1982) offeredone response to Lucas’s critique withtheir method of “real business cyclemodeling” (RBC). Like Cowles, the modelhas a distinct structure (micro and macro),but Kydland and Prescott calibrate themodel using parameter values derivedfrom data and generate simulations of theequilibrium processes. Thesesimulations also serve as the basis forthe statistical sampling distributions.Kydland and Prescott “test” the validityof a model by comparing how close thesesimulated statistics are to those computedfor data from actual economies (see Sims1996 for a critique).

The approaches advocated by Simsand Kydland and Prescott place apremium on uncovering causalmechanisms. Furthermore, they take amore eclectic view on refutation(falsifiability). A significant t-statistic, forexample, is only one of many potentialcriteria used to test a model. In otherwords, unlike current methodologicalpractices in political economy whichfocus on the t-statistic, the criteria usedfor refutation are a means not an end.

Building a Cumulative Science ofQuantitative Political Economy

While there has been considerablescientific improvement in quantitativepolitical economy, there is also cause forconcern that political economists are notabsorbing the scientific lessons ofpredecessors, and in particular, theCowles Commission. The successorapproaches of either Sims or Kydland andPrescott have also been marginalized.12

Much of current quantitative politicaleconomy is only loosely connected to thefundamental scientific considerations ofidentification and invariance.

It is now increasingly obvious thatsome current methodological practices inpolitical science (Achen 2002), whenapplied in quantitative political economy,contribute to noncumulation. Whileborrowing applied statistical tools did





institutions of a society and focus onisolating a particular theoretical concept.Narratives have been especially useful inillustrating what might otherwise beanomalies in contracting. Much of thework of Ronald Coase falls into thiscategory. Coase is a particularly aptexample because his first published articlewas about the neglect of transactioncosts in the theory of the firm and inparticular the important role oftransactions costs in vertical integrationand disintegration. Numerous narrativesthen analyzed specific cases, perhaps themost famous being the integration of theFisher Body Company into GeneralMotors.7 Other early micro narrativesinclude cases of long-term contracting.8

As a result of the narratives, theoristshave incorporated many of the insightsinto a much richer theory of contracting.9

Narratives are ideally suited to makecomparisons across time, a period longenough to isolate the determinants orimpacts of institutional change.10 Throughcase studies scholars can study thedynamics of individual societies andbegin to understand the lack of worldwidedevelopment. Particularly puzzling is whythere exists so much “institutional lock-in” given the poor economic performancein many countries.11 Recently macrotheorists have utilized narratives to helpthem build broader theories for explainingthe lack of world-wide development.12

Case studies have also been used to makecomparisons across space, e.g. byholding constant a sector the analyst canmake better inferences about the role ofpolitical institutions on economicoutcomes.13

As all of those who work in the areaof the new institutional economicsunderstand, there is no grand all-encompassing theory of institutionaldevelopment and change. Case studiesare important for the profession becausethey form the building blocks for aframework for understanding the role ofinstitutions in societies with the hope ofsomeday having what we might term a

theory of institutional development.Towards this goal, it is critical for scholarswho develop case studies to do so withan understanding of how their work fitsinto a broad framework of either thedeterminants of institutional change orthe impacts of institutions on political andeconomic outcomes. This is true for both“micro” and “macro” studies. For microstudies the economic outcomes typicallyentail a particular type of contracting.14

For macro case studies, economicoutcomes include indicators such as GDPper capita, income distribution oreconomic opportunity. By politicaloutcomes I mean indicators such as thedegree of political competitiveness ormore micro outcomes such as an electionor the passage of a law. One of the moredifficult tasks of scholars in the NIE whoutilize case studies is to prevent theresearch from becoming simply a “goodstory.” To increase the analyticalcomponent, it is critical to isolate what isexogenous and what is endogenous tothe actors in the system that one is tryingto understand. In this way we can makeheadway towards a more generalunderstanding of the dynamics. Of coursethe issue of endogeneity can always rearits head but this is where a thoroughunderstanding of an issue helps theanalyst. This is true for either decidingex-ante what is exogenous to the questionat hand or for deciding on “sensible”instruments.

In advocating the case studyapproach, by which I meansupplementing qualitative withquantitative evidence, I am notadvocating forsaking theory. Indeed thecase study approach can make theorymore compelling as well as help to buildonto existing theory. The advantages ofthe case study approach are several: 1)when coupled with quantitative evidencecase studies provide a more convincingexplanation of an issue. This is especiallythe case when the quantitative evidenceis scant and the ability to conduct formaltests limited; 2) case studies increase our

understanding of outliers rather thansimply identifyingthem; 3) case studiesaid the analyst in deciding the linebetween exogenous and endogenous,especially when coupled with statisticaltests; 4) case studies form the buildingblocks for a more unified theory ofinstitutional change which will put meaton the bare bones concept of “pathdependence."

I illustrate the use of case studiesby describing research in three broadareas that I have studied: the role ofproperty rights to land and the causes ofinsecure property rights for land; theimportance of beliefs in the rule of law;and the roles of economic incentives andpolitical abilities in shaping policyoutcomes.

II. Titles, Conflict and Land Use in theBrazilian Amazon15

It is now received wisdom that secureproperty rights promote economicgrowth, yet there has been surprisinglylittle empirical work on either the precisemechanisms by which secure propertyrights promote growth or on thequantitative impact of property rights ongrowth.16 Case studies can fill this void.In this section I summarize themethodology that we used and some ofthe empirical results from our research ontitles and land use in the Brazilian Amazon.By property rights I mean both thespecified and enforced rights thatindividuals have to resources. Specified(i.e. legal) property rights to land mayinclude: the ability to use the land,including keeping it idle; the right to sellthe land; the right to bequeath the land;and the ability to use the land as collateral.Property rights are enforced throughsocial norms (when scarcity values arelow), such as the stigmatization of criminalactivity; private enforcement, such asfences that deter encroachment; andgovernment enforcement such as forcedevictions by police.

Secure property rights may influence


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improve upon older techniques, thesearch for identified and invariantrelations was virtually nonexistent. Inmore technical language, the creation ofmethodologies that isolated structuralparameters — for the identification ofthese parameters — became secondaryto the use of applied statistical techniquesthat end up doing things such asmanipulating standard errors and theirassociated t-statistics. There was no useof formal modeling to aid in this processof determining identification, and byextension, invariance. Moreover, therewas little effort to seek unification betweenformal and empirical approaches.

Some political scientists did see theproblems associated with disjointedquantitative work.13 For example, Aldrichargued in 1980 that:

“Empirical observation, in theabsence of a theoretical base, is at bestdescriptive. It tells one what happened,but not why it has the pattern oneperceives. Theoretical analysis, in theabsence of empirical testing, has aframework more noteworthy for its logicalor mathematical elegance than for itsutility in generating insights into the realworld. The first exercise has beendescribed as “data dredging,” the secondas building “elegant models of irrelevantuniverses.” My purpose is to try tounderstand what I believe to be a problemof major importance. This understandingcannot be achieved merely byobservation, nor can it be attained by themanipulation of abstract symbols. Realinsight can be gained only by theircombination (p. 4).

Echoing these sentiments Bartelsand Brady (1993) argued that in the fieldof political methodology “there is still fartoo much data analysis without formaltheory – and far too much formal theorywithout data analysis.” (p. 148).

A Proposed Framework for Unificationof Formal and Empirical Analysis

Below is a methodological frameworkto unify formal and empirical analysis.14

As with the Cowles Commission, it arguesthat cumulative research practices aremore likely to occur when efforts are madeto identify parameters in the model. Anemphasis on parameter identification —structural (invariant) parameters —provides more transparent interpretationand allows for refutation.

Structural parameters are only partof what is necessary for refutation. If onewere to strictly adhere to the CowlesCommission approach we would, forexample, forego the chance of modelingnew uncertainty created by shifts inbehavioral traits (such as public tastes,attitudes, expectations, learning, etc.).The scientific consequence of thisomission directly affects the issues ofidentification and invariance becausethese unaccounted behavioral shifts ofvariables would not be linked withthe other variables and specifiedparameters.

This framework addresses theseissues through the unification of formaland empirical analysis. In this way, thisframework takes advantage of themutually reinforcing properties of formaland empirical analysis to address thechallenge(s) above. The other attributeof this framework is the emphasis onconcepts that are quite general andintegral to many fields of research but thatare seldom modeled and tested in a directway.

There are three basic steps:

1. Link Theoretical Mechanisms andApplied Statistical Concepts

A fundamental part of theoreticalexplanation is identifying the causalmechanism—the reason(s) why theindependent and dependent variablescovary. Given that human beings are theagents of action, mechanisms shouldreflect overarching social and behavioralprocesses. Examples include bargaining,expectations, learning, and socialinteraction.

It is imperative to find an appropriatestatistical concept to match the theoretical

mechanism. For example, if our behavioralmechanism is learning, then anappropriate applied statistical conceptthat is linked to learning might bepersistence, measurement error, orsimultaneity. By trying to operationalizethe mechanism, we move beyondaggregated and static operationalizationsof variables that invite misuse of the t-statistic. This latter practice includes theuse of dummy variables or other crudemeasures that have no behavioral basis.

2. Develop Behavioral (Formal) andApplied Statistical Analogues

To link concepts with tests, we needanalogues. An analogue can be thoughtof as a device in which a concept isrepresented by continuously variable —and measurable — quantities.Analogues serve as analytical devices forbehavior and, therefore, provide forchanges in behavior as well as a moretransparent interpretation of the formaland applied statistical model. Analoguesalso emphasize measurement validity —the relation between a measure and the(unmeasured) concept it is meant torepresent.

Current methodological practice inquantitative political economyemphasizes finding validoperationalizations of the independentand dependent variables. This isinsufficient for finding causalmechanisms, since we need to unify theoperationalization (data) with formaltheory and an empirical test.

Examples of analogues for thebehavioral (formal) concepts such asexpectations and learning include (butare not limited to) conditionalexpectations procedures (Muth 1961)and Bayesian and adaptive learningprocedures, respectively. On the otherhand, examples for the applied statisticalconcepts such as persistence andmeasurement error include autoregressiveprocesses and error-in-variables models,respectively.

THE POLITICAL ECONOMIST12

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3. Link and Evaluate the Behavioral(Formal) and Applied StatisticalAnalogues

In current methodological practice wesee correlations in the data, but with themisuse of the t-statistic, there is no effortto evaluate the causal mechanism.Consequently, we cannot be sure of theunderlying reasons why a variable causesan outcome. This framework attempts touncover the mechanism(s) through thelinkage and evaluation of the behavioraland applied statistical analogues. Indoing so, this third step uses the mutuallyreinforcing properties of the formal andempirical analogues and helps identifythe parameters of interest (i.e., the (b’s)).

Moreover, this linkage andevaluation provides a clearer (i.e.,falsifiable) interpretation of the resultsbecause the model’s mechanisms areexplicit. The specified linkage showspotential sources of inaccuracies andmodel failure. Further, an inductive anddeductive dialogue is created betweenthe data and the technique(s) where newtheoretical mechanisms and/or newanalogues can be used.

An example of this framework is thelink between expectations (uncertainty)and measurement error.15 In separatework, Friedman (1957) and Lucas (1973)merged “error in variables” regressionswith formal models involving informationuncertainty.16 The important contributionof both Friedman’s and Lucas’s work (onthe consumption function and aggregatesupply respectively) is that they relateexpectational uncertainty to specificparameters in their regression model(s).This linkage provides a behavioralexplanation (achieving identification andaccounting for invariance) on whyparameters in their empirical model mimicerror in variables regressions. Friedmanand Lucas’s substantive findings wouldnot have been achieved had they justtreated their research question as a puremeasurement error problem requiring only

an applied statistical analysis (and “fix”for the measurement error) that focusedon a significant t-statistic.17

This framework is certainly not thefinal word on linking formal and appliedstatistical models.18 For example, onecould simply link any formal model withactual data and test the specifiedprediction. In addition, research thatfosters links to different levels of analysis(Kydland and Prescott 1982, Freeman andHouser 1998) or makes explicit use of gametheory (McKelvey and Palfrey 1995, 1996,1998, Signorino 1999, Mebane andSekhon 2002) currently exist. The use ofBayesian analysis is a promising routeas well. Experiments, too, provide a richalternative to the secondary data analysisthat is implied in this framework (see adiscussion in Morton (1999)).

It should also be noted that theproposed framework leads to alternativecriteria for refutation and falsifiability. Inparticular, there is an explicit focus onparameters. This is important sincedifferent levels of specificity in a formalmodel can create free parameters andconfound identification. One could thinkof this framework, then, as having twolevels, the first level involving results thatare consistent with the formal and appliedstatistical analogues’ predictions. But, asecond level requires even greateremphasis (via added information) onidentifying every structural relation in theformal model.

This approach also suggests thedevelopment of new metrics that addressthe degree to which free parameters canconfound the results. One possibility isto create a tolerance criteria on therelation between the structural equations(the formal model), the number of freeparameters, and the probability ofachieving valid refutation (Type I andType II errors).19

In the end, this framework should notbe interpreted as a substitute for pureformal or pure empirical approaches.There are numerous examples wheretheory is ahead of data and data are

ahead of theory, sometimes for decades(Ridgen 2005). Nor should thequantitative nature of this frameworksuggest it precludes the use of qualitativeprocedures (see Brady and Collier 2005).Such exclusion would be throwing outinformation which could otherwise aid infinding underlying mechanisms. Indeed,what this framework is meant to do is shiftthe focus away from unscientific uses ofquantitative methods.

Summary and ImplicationsWhy is creating a more scientific

methodology for quantitative politicaleconomy a meritorious activity?Improving upon current practice addssignificant social value to our work. Forexample, much of quantitative politicaleconomy has been directed towardassisting policymakers in devising waysto stabilize business cycles. In particular,we know that the volatility of businesscycles has been reduced in the past 50years and that the duration of economicexpansions has increased in the UnitedStates (Granato and Wong (Forthcoming))and around the world (Sheffrin 1989).20

These salutary economic events occurredat approximately the same time thatquantitative political economicmethodologies emphasized and werejudged on their ability to produceidentified and invariant predictions.

Is this relation betweenquantification and prosperity acoincidence? A good case can be madethat the guidelines of the CowlesCommission and successormethodologies has contributed tochanges in business cycle behavior (sinceWorld War II). And while they havereceived their share of criticism, thesequantitative tools have assistedpolicymakers by providing usefulknowledge and creating a systematicscientific justification for policymakeractions.

As a final thought, we cannot relyon current quantitative practices that


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misuse the t-statistic if we are to addresscomplex issues, such as why somecountries succeed in following certainvalid policy prescriptions and others fail.The failure to emphasize identificationand invariance threatens scientificcumulation in quantitative politicaleconomy. To ensure that politicalscientists are at the forefront of thisscientific endeavor, efforts can be madeto encourage research (and a mindset)that unifies formal and empirical analysis.

ReferencesAchen, C. H. 1983. “Toward Theories of

Data: The State of Political Methodology.” InPolitical Science: The State of the Discipline,ed. A. Finifter. Washington, D.C.: AmericanPolitical Science Association.

Achen, C. H. 2002. “An Agenda for theNew Political Methodology: Microfoundationsand ART.” Annual Review of Political Science5: 423-450.

Aldrich, J. H. 1980. Before theConvention: Strategies and Choices inPresidential Nomination Campaigns. Chicago:University of Chicago Press.

Bartels, L., and H. Brady. 1993. “TheState of Quantitative Political Methodology.”In Political Science: The State of the DisciplineII, ed. A. Finifter. Washington, D.C.: AmericanPolitical Science Association.

Brady, H., and D. Collier., eds. 2005.Rethinking Social Inquiry: Diverse Tools, SharedStandards. Boulder and Berkeley: Rowman andLittlefield, and Berkeley Public Policy Press.

Bronowski, J. 1978. The Common Senseof Science. Cambridge: Harvard UniversityPress.

Cooper, G. 1948. “The Role ofEconometric Models in Economic Research.”Journal of Farm Economics 30: 101-116.

Freeman, J. 2005. “Modeling MacroPolitics: EITM and Reality.” Paper presentedat the annual meeting of the Canadian PoliticalScience Association.

Freeman, J., and D. Houser. 1998. “AComputable Equilibrium Model for the Study ofPolitical Economy.” American Journal ofPolitical Science 42: 628-660.

Freeman, J., T-M. Lin., and J. Williams.1989. “Vector Autoregression and the Study ofPolitics.” American Journal of Political Science33: 842-877.

Friedman, M. 1957. A Theory of theConsumption Function. Princeton: PrincetonUniversity Press.

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economic growth through severalmechanisms: 1) secure property rightsprovide the incentive to maintain thevalue of an asset; 2) secure propertyrights provide an incentive to enhancethe value of an asset throughinvestment; 3) secure property rightsprovide the ability to invest by enablingthe property right holder to use the assetas collateral for a loan; and 4) secureproperty rights increase the extent of themarket and thereby may increase theexchange value of an asset by enablingoutside investors to compete for theownership of the asset.

Individuals in societies demandsecure property rights because theyenhance the value of their assets.Underlying the analysis is the notion thatthe potential rent generation from moresecure property rights increases as theresource becomes scarcer. The differencebetween the rental streams from an assetwith more as compared to less secureproperty rights generates a “demand” forsecure property rights.

In our exposition we used distancefrom a market center as the proxy forscarcity but we could also use fertility ofthe soil or population density asalternative measures of scarcity.17 Hereit was our knowledge of the region thatprompted the use of distance rather thanan alternative measure. The framework isflexible to allow for changes intechnology, preferences or new marketopportunities.

To put meat on the analytical bonesdetailed above, we (Alston, Libecap andSchneider, 1996) conducted 249 surveysin 1992 of smallholders in the BrazilianAmazonian state of Pará. Designing thesurvey ourselves enabled to us to collectdata on the factors important for a studyon the role of property rights.18 We chosethe state of Pará because it was the mostpopulous Amazonian state and the areawhere land conflict was the mostprevalent. This is still true as of 2005. Weselected four different areas for oursurveys in order to control and test forthe importance of various attributes. The

mix of sites allowed us to analyze theeffects of different agency jurisdictionsand settlement processes. Withouthaving knowledge of the settlementprocess and legal jurisdictions we wouldnot have been able to choose our sitesto test for the provision of property rights.

Undertaking a case study enablesthe analyst to better understand exactlywhat the proxy for property rightsconveys. In our case we used formal titlesas the proxy for secure property rights.We maintained that titles conveyed a lotof information about security to the land.Title is a formal document that either isissued by the Brazilian federalgovernment or the state government,depending on jurisdiction, and whichsignifies government recognition of anindividual’s property rights to land. Withtitle, the police power of the state is usedto enforce private property rights to land.As the most visible form of ownershiprecognition by the government, havingtitle reduces private enforcement costs,provides security and collateral for long-term investment in land improvements,and promotes the development of landmarkets. All of these activities are wealthenhancing.

With a firm understanding of therights title conveyed we then proceededto estimate the impact of land titles onland investment and land values.19

Controlling for a host of individualcharacteristics we estimated thepercentage of total farmland representinginvestments for those with and withouta title. The results across our sites follow:Devoting land to pasture or permanent

Table 1Percentage of Hectares devoted to

pasture or permanent crops

Without a Title With a title

Altamira 26% 55%Sao Felix 7% 28%Tailandia 12% 33%Tucuma 32% 80%

crop represents large investments inmaterials, effort, and, in the case of treecrops, patience. The effects are large,statistically reliable and, importantly,believable because of the care that wentinto understanding the local context andtherefore the survey design.

We also estimated the impact of titleon land values, over and above its impacton investment. Investments shouldincrease land values more on titled thanuntitled land. This extra increase isbecause settlers have to expend less timeenforcing their own claims and becausethe extent of the market for their land hasincreased. For example, most investorsin Sao Paulo or Rio de Janeiro would onlybuy titled land. The increased value of atitle is greater for land that is closer to amarket center. For land at the marketcenter our estimates indicate that a titletitle increases land values by 189%. Forland that is 40 kilometers from the market,value would increase by 72% with a title;and for land 140 kilometers from a marketland values would increase by 45%.These estimates make sense becausetitled land closer to a market should havea greater value due to increasedcompetition for the land. By controllingfor distance we show that titles mattermore, not surprisingly, the greater thecompetition for land, which we proxiedby distance to the market.

It is the potential impact of propertyrights to land that will drive the “demand”for property rights. But property rightsare not costlessly supplied nor are theincentives identical across titlingagencies in Brazil. In our work on theAmazon we used proxy variables for bothdemand and supply side variables andestimated the determinants of propertyrights. As the potential impact of secureproperty rights increased so too did theprobability of having a title. Perhaps moreinnovatively we were able to test for theimpact of different suppliers of title onthe likelihood of an individual having atitle. It turns out that state land agenciestitle more, holding all else constant, than





federal land agencies. This makes sensegiven that there is a greater electoralconnection between land holders andlocal politicians who tend to title prior toelections as a quid pro quo for a vote.We reached this conclusion by askingsquatters if and when they anticipatedreceiving a title. Only using a dummyvariable to capture jurisdictionaldifferences, however, would not haveallowed us to achieve these findings.

If titles have such beneficial resultswhy are secure titles not more prevalentin Brazil and elsewhere in the world?Though many landholders in the Amazonand elsewhere in rural Brazil have a legalformal title, property rights for many largelandholders remain insecure. Severalfactors account for the insecurity. Brazilhas the highest level of land inequalityin Latin America, which produces aconsensus view in Brazil for land reform.Yet, there is also a consensus thatproperty rights and land titles should beupheld. In the 1988 Constitution, as wellas earlier Constitutions, there is aprovision allowing squatting on privateland if the land is not “beneficially used.”If land is not productively used the statehas the right to expropriate (withcompensation) the land. As a result ofthese Constitutional measures, theLandless Peasants Movement hasorganized land invasions in the hope ofprompting the government to expropriateand redistribute to the invading group.This leads some farmers in the Amazonto cut trees prematurely in order to show“beneficial use.” In all regions theinvasions and reactions of landholdershas led to violent conflict. One can viewthe conflict at a higher level as onebetween the federal governmentresponding to the general interests of thepublic for land reform and the courts whoadjudicate according to Civil Law whichguarantees the rights of private propertyholders. In an even broader sense thereis a political conflict present in allsocieties to a greater or lesser degree ofpromoting efficiency through secureproperty rights and promoting equity

through redistribution.The goal of describing the work on

property rights in the Amazon was toprovide sufficient description to illustratesome of the benefits of the case studymethod as discussed in the introduction.By providing sufficient detail, in thisinstance the role of land titles in theBrazilian Amazon, we can first understandthe issue and thereby better isolate thetheoretical concept and as a result theargument becomes more compelling. Ialso tried to emphasize the importance ofbeing analytically clear on thedeterminants of institutional change, herethe demand for and supply of propertyrights, and the impact of a giveninstitutional change, in this case theimpact of having a land title oninvestments in land and land values. Theresults of a case study should also shedlight on a bigger issue. In this case it isthe role of property rights in fosteringeconomic development. I trust that it isobvious that to the extent that titles affectbehavior in the Brazilian Amazon theymight function in a similar fashion in LatinAmerica.20

III. The Erosion of Checks and Balancesin Argentina and the Rise of Populism21

At the dawn of the 20th centuryArgentina was in the top ten in GDP/percapita in the world. At the dawn of the21st century Argentina is a middle incomecountry. Why did the fall occur? Cross-country econometric evidence wouldprobably do little to help us answer thisquestion because regression analysistells us about behavior at the mean andArgentina is an outlier. On the other handa detailed case study can give us a betterunderstanding of off-path behavior,which in turn may help us produce moreenlightened policies for economicdevelopment. This case study alsoillustrates the role of beliefs in shapingeconomic policies, especially in the long-run when economic performance is poor.The role of beliefs is important fortheorists to understand in their quest asto why there has not been convergence

in GDP across countries.From the late 19th century until 1914

Argentina was run by a conservativeautocratic elite. In 1912 Argentinaestablished the secret ballot andembarked on its way towards becominga country ruled by a legitimatedemocracy. As a result of the secretballot, the Radical Party secured majorityrepresentation in the Chamber ofDeputies and the Presidency from 1914to 1930. The Conservative Partymaintained its majority in the Senate.During this period Argentine citizensbegan to develop a belief in the rule oflaw, with the Supreme Court acting as anindependent check on the executive andlegislative branches.22 During this periodArgentina also continued in its mode ofsustained economic growth. Thevirtuous feedback from a system ofchecks and balances to economic growthcame to an end with the first military coupin Argentine history in 1930. TheConservative Party openly supported thecoup, as did the Supreme Court and somepeople within the Radical Party.

The Conservatives planned onmoving back to open democracy and helda fair election in the province of BuenosAires in 1932. The Radical Party won theelection and the Conservatives, fearingdefeat at the National Election, annulledthe vote. The Conservatives in particularwere afraid of turning over economicpolicy to the Radicals during the GreatDepression. Though conductingeconomic policy well during the GreatDepression, the Conservativescontinued to engage in fraud in severalleading Provinces, particularly BuenosAires, in order to stay in power.23 As aresult the Conservatives eroded the beliefin the rule of law and set the stage for thenext military coup in 1943 and the supportfor populism.

Following the coup, Juan Peron wonthe Presidential election fairly in 1945.24

His platform consisted of a series ofpopulist policies one of which entailedabridging the property rights of





landowners in the Pampas. Thisabridgement of rights would not havebeen possible had it not been for theimpeachment of all but one of theSupreme Court Justices. In the hearingsfor the impeachment it was clear that therationale was the countenance of fraudduring the 1930s. Following theimpeachments, the Peronists began tocraft a new Constitution, which theysubmitted for approval in 1949. With anew constitution in hand and without abackstop of an independent judiciary, thePeronists were able to have their way untilthe next military coup in 1955.25

Since the impeachment process andnew constitution, Argentina has neverbeen able to return to its former institu-tional path of upholding property rightsthrough the rule of law. In the aftermathof Peron, Argentina witnessed a depar-ture from its historical growth trajectorycompared to other high-income coun-tries.26 In 1947 Argentina was ranked 10thin the world in per capita income. Rela-tive to various cohorts to whom Argen-tina might be compared, relative incomeper capita fell precipitously. Argentinanow ranks between the mid-sixties andmid-eighties in income per capita and isno longer the growth superstar of LatinAmerica.

Successive military and populistgovernments appointed their own Su-preme Court Justices in order to accom-plish their political goals. But, without thecourt as a backstop, institutional volatil-ity ensued.27 Until Peron, no Justices hadbeen impeached or “forced” to resign.Following Peron, only 5 of the 63 changesin Justices have been due to death or re-tirement.

The only time when Executive,Legislative and Judicial branches wereclose to the ideal of the Constitution wasthe Camelot period of 1912-30. After themilitary coup of 1930, instead of returningto open democracy, the conservative eliteresorted to fraud in order to stay in officeand dictate economic policy. TheConservatives may be given high marks

for economic policy but their short-sightedness gave rise to oscillationsbetween democratic/populist andconservative/military governments. Withthis background we cannot be sanguineabout the future institutional path ofArgentina.28 Until Argentina moves toback to a respect for rule of law with anindependent court and constitutionalreview, it seems highly unlikely that short-run economic policies can re-igniteeconomic growth.

The importance of studying theArgentine case is to understand off thepath behavior. Argentina is the onlycountry in modern history that fell from ahigh to a middle-income country. It is onlyby understanding the historical detail thatallows us to argue that in the absence offraud Argentina would still be a highincome country with checks and balances.The Argentine case also provides a moregeneral lesson about the fragility of youngdemocratic institutions. Beliefs in thesystem of checks and balances areimportant for both building andsustaining democratic institutions, whichunderlie long-run economic growth.

IV. Southern Paternalism and theAmerican Welfare State: The Dynamicsof Institutions29

Temporal analysis of thedeterminants and impact of institutionsis necessary in order to better understandthe dynamics of institutional change.Case studies are ideal for this taskbecause they enable the analyst toconstruct an analytical narrative.Narratives allow for the combination of adeep understanding of the historical andinstitutional context with a theoreticalframework. Temporal narratives also givethe scholar the ability to address the “bigpicture” that is both the consequencesof institutions on economic performanceand the feedback of economicperformance on institutional change.

Generally, it is an easier task toanalyze the impact of institutions oncontracting and in turn economic

performance. I use “contracting” in thevery general sense, i.e. how theparticipants interact to best exploit thepotential gains from trade. The beauty ofa case study is that it allows us to keepthese abstractions in mind while engagingin the specifics of time and place whichHayek and Coase viewed as essential fortheoretical (Hayek) and empirical (Coase)work.

In this section I will detail the riseand fall of paternalism (a part ofcontracting) in Southern agriculture andthen the impact of paternalism on theshape of the American welfare state (aset of institutions). Prior to analyzingpaternalism it is important to set the stageor establish the background conditions.From its initial settlement by Europeansin the early 17th century to mid-20th

century, the U.S. South was dominatedby agriculture both economically in termsof employment and politically in terms ofrepresentation. Our analysis focused onthe post-Civil War (1865) period until circa1970. Throughout this period the Southcan be characterized as a “low wage” and“low education” region. From the late 19th

century there was effectively only onepolitical party: the Democratic Party.

Because of the legacy of slavery andmassive immigration to the U.S. North inthe late 19th and early 20th centuries, theSouth was home to the vast majority ofthe black population in the U.S. until afterWorld War II. Furthermore, most of theblack population resided in rural areas andworked in agriculture, many onplantations where their predecessorstoiled. On large plantations paternalisticrelations predominated. By paternalism inSouthern agriculture, I mean an implicitcontract that emerged following the CivilWar, under which agricultural workers(more often black than white) exchanged“good and faithful” labor for a variety ofin-kind goods and services, most notablyprotection from civil rights abuses.

Workers had a “demand” forpaternalism because of the presence of





discriminatory laws and practices in theSouth and the absence of any federal orstate welfare programs. For example, bythe 1890s the Democratic agricultural elitemanaged to disfranchise most blacks (andmany poor whites) through theestablishment of literacy tests and polltaxes. Lynchings – public murder –peaked in the 1890s. In this atmosphere,labeled in the early 20th century by W.E.B.DuBois as “an armed camp forintimidating black folk,” it made sense forblack workers to attach themselves to awhite protector who could protect themfrom the most vicious abuses and alsoprovide them with the modicum of socialinsurance, e.g. a house, medical care,garden plots and, for the most loyalworkers, old age assistance.

Landlords had an incentive to“supply” paternalism because of the highmonitoring costs in pre-mechanized laborintensive agriculture. By offering apaternalistic contract planters couldinduce greater work effort and reduceturnover by supplying goods andservices (protection from civil rightsabuses) that were difficult if notimpossible to procure in the market. Inthe language of labor economists,paternalism functioned as an efficiencywage, the landlords offered workers atotal compensation package that had agreater value than the alternative, casuallabor market, package. The simple“demand” and “supply” framework forpaternalism examines contracting andtakes institutions as exogenous. I nowturn to an examination of politicalinstitutions.

Paternalism rested on the politicalability of Southern Congressmen tomaintain social control in the South andprevent northern interference in race andlabor relations. The disproportionateability of Southern Congressmen to wardoff northern attempts to reform the Southrested on two main institutional factorswhich I also take as exogenous to thisanalysis. The first important institutionin the South was the creation and

maintenance of the southern one-partysystem. Having one party gavedisproportionate seniority to SouthernCongressmen, which in turn allowedSouthern politicians to occupy nodes ofpower in the U.S. Congress, in particularchairs of committees. Chairs ofcommittees have considerable agendasetting power, which allowed Southernersboth to veto legislation that as whole theydid not want and shape bills to theirpreferences.

Further bolstering Southern politicalpower was their ideological positionwithin Congress. Overall they occupieda pivotal position. On labor and racerelations they aligned themselves withRepublicans, but on other issues theysided more with the populist side of theDemocratic Party. Ideology and agendacontrol enabled the South to shape thewelfare state in the U.S. for more than 50years. I stress that here the analysis takeswelfare policy as endogenous to thepolitical actors in the South because ofexogenous institutions giving themdisproportionate political power.Evidence that Southerners were able toprevent any interference in agriculturallabor relations include: 1) Agriculturalworkers were excluded from the first twomajor welfare and labor relationsprograms passed during the 1930s – theSocial Security Act and Fair LaborStandards Act; 2) Southerners weredecisive in cutting appropriations to theFarm Security Administration (FSA) in thelate 1930s when the FSA turned its agendafrom recovery to reform; 3) Southernerswere instrumental in establishingdeferments from the military draft foragricultural workers during World War II;and 4) Southerners initiated andmaintained the “guest worker” programfor Mexicans to work in U.S. agriculture,mostly outside of the South, as a meansof discouraging out-migration of its ownagricultural labor force.

So far I have described howpaternalistic relationships in Southernagriculture emerged and were sustained

because of the economic incentive andpolitical ability of Southerners to keeplabor cheap and dependent. In this partof the analysis we took paternalisticrelations as the “dependent” variablegiven a set of institutions. In another partof the analysis we showed how anotherset of exogenous institutions, e.g. theone-party system coupled with strongcommittee power, enabled the South toshape the welfare state, which in turn fedback on paternalistic relations.

The dynamic maintainingpaternalism began to change in the late1950s and early 1960s and by circa 1970we see little paternalism in Southernagriculture. Given that paternalism restedon the economic incentive in Southernagriculture and the political ability ofSoutherners to shape labor relations, oneor both had to change. We argue that theeconomic incentive to continuepaternalistic contracting changed withthe mechanization of cotton andcomplementary technology that came tofruition around 1960.30

A competing though not necessarilycontradictory explanation for the declineof paternalism is that the political abilityof Southerners to resist the expansion ofthe welfare state declined. We find theevidence inconsistent with Southernerslosing political power. As a measure ofpolitical power, we used the chairmanshipand top five senior seats held by SouthernDemocrats on the following House andSenate Committees: House Committees –Rules, Appropriations, Ways and Means,Agriculture, Education/Labor andJudiciary; and Senate Committees: Rules,Appropriations, Finance, Agriculture,Labor and Judiciary. The evidence clearlyshows that Southerners did not lose theirdominance of the committee hierarchy inthe 1960s and indeed Southernersslightly increased their strategic nodesof power. We also stressed that it wasnot necessary for Southerners todominate a particular committee in bothhouses of Congress; seniority in one

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chamber is sufficient to act as a vetoplayer.

With the economic incentive tosupply paternalism obsolete and with itthe fierce opposition to the rise of thefederal welfare state, we argue thatSouthern Congressmen allowed andshaped the expansion of the modernAmerican welfare state. Evidenceconsistent with this view includes: 1) thepassage of the Economic Opportunity Actin 1964 which was the first welfarelegislation to encourage migration out ofthe South by allowing state control ofwelfare benefits, even though the benefitswere partially funded by the federalgovernment; 2) the termination of theguest worker program for Mexicans in1963; 3) the passage and expansion ofthe Food Stamp program; 4) thesoliciation of outside capital bySoutherners; and 5) the dramatic increasein expenditures on Southern primary andsecondary education.

The rationale for the detail in thiscase was to show how to use case studiesto illustrate and test the dynamics andfeedback loops among institutions,economic contracting, economicperformance, technological change andinstitutional change. Like all of politicaleconomy, it is crucial for the analyst to beexplicit about what is exogenous andwhat is endogenous. Unless one does sothe narrative strays from being analyticalwith general lessons to being a uniquestory.

V. The Lessons from Case StudiesIn this essay, I tried to demonstrate

the value of case studies for economistsand political scientists by detailing threespecific case studies. The tools used incase studies are similar to the tools usedelsewhere in the New InstitutionalEconomics: a theoretical frameworkemphasizing the interaction of institutionsand economic performance; and empiricaltesting using both qualitative andquantitative evidence, includingeconometrics. Case studies have value

in part because they enable the scholarto be very detailed and specific aboutboth causation and testing. In ouranalysis of Brazil we provided a cleardescription of the possible benefits ofhaving a title and how values vary withthe distance from a market. This enabledus to perform very clear tests thatgenerated believable results about boththe determinants and impact of land titles.The importance of the study lays both inthe issue itself, the Amazon being one oflargest remaining frontiers in the worldbut also because it clearly illustrates andquantifies the role of secure propertyrights.

Case studies can also enable theanalyst to examine off-path behavior andthe role of beliefs in shaping economicpolicies, which in turn shape economicperformance. The most generalcharacteristic of societies is stasis butthere are critical turning points. Detailedcase studies may be the best way toexamine moments in a country’s historythat have long term effects. We arguedthat the electoral fraud in Argentina inthe 1930s promoted a belief in populismthat led to an erosion in the belief in therule of law and that in turn led to adeclining relative economic performance.Argentina fell from one of the top GDPper capita countries in the world to amiddle income country.

One of the hallmarks of the NewInstitutional Economics is its ability toexamine the dynamics of institutionalchange and economic performance. To doso requires that the analyst be carefulabout what is exogenous and what isendogenous to the actors in the system.In the case study of paternalism inSouthern U.S. agricultural labor contractswe tied the prevalence of paternalism tothe high supervision costs of monitoringlabor prior to mechanization of Southernagriculture. But, for paternalism to reducemonitoring, workers needed to bedependent on their landlords. Thisdependence required the absence ofwelfare programs which, because of

political institutions in the U.S., the Southwas able to shape. Once mechanizationbecame available, the South again shapedwelfare policies only now in a way thatencouraged migration out of the South.

The goals of case studies include:the ability to first understand an issueprior to modeling it; the ability to testtheoretical hypotheses using bothqualitative and quantitative evidence;and the ability to shed credible light onthe workings of the institutional andeconomic workings of society. At thecurrent stage of development of the NewInstitutional Economics, case studiesallow us to ask better questions, and thendevelop and test better models. Casestudies form the building blocks uponwhich we can erect a more solidtheoretical and empirical foundation for atheory of the dynamics of institutionalchange: the holy grail of many in the socialsciences.

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Gallo, Andres, “Argentina-Australia:Growth and Convergence in the XX Century.”Working Paper, University of Illinois at UrbanaChampaign, 2003.

Joskow, Paul. 1985 “Vertical Integrationand Long Term Contracts: The Case of CoalBurning Electric Generating Plants,” TheJournal of Law Economics and Organization(Spring): 33-80.

Levy, Brian, and Pablo T. Spiller. “TheInstitutional Foundations of RegulatoryCommitment: A Comparative Analysis ofTelecommunications Regulation.” Journal ofLaw, Economics and Organization 10 (October1994): 201-246.

Libecap, Gary D. 1989. Contracting forProperty Rights. New York: CambridgeUniversity Press.

North, Douglass C. 1990. Institutions,Institutional Change and EconomicPerformance. New York: Cambridge UniversityPress.

North, Douglass C. 2005. Understandingthe Process of Economic Development.Princeton: Princeton Economic Press.

Ostrom, Elinor. 1990. Governing theCommons: The Evolution of Institutions forCollective Action. New York: CambridgeUniversity Press.

Spiller, P. T. and M. Tommasi. 2003. “TheInstitutional Foundations of Public Policy: ATransactions Approach with application toArgentina,” Journal of Law Economics andOrganization, Vol.19, No.2, Oct.

Westin, Alan F., “The Supreme Court, ThePopulist Movement and the Campaign of 1896”.The Journal of Politics, Vol. 15, No. 1, 1953,3-41.

1 This essay draws heavily from aforthcoming chapter, “The “Case” for CaseStudies in the New Institutional Economics” inNew Institutional Economics: A Textbook,edited by Jean-Michel Glachant (2005). Forcomments and helpful discussions I thank DavidBrown, Joseph Ferrie, Andres Gallo, GaryLibecap, Bernardo Mueller and TomasNonnenmacher.

2 A similar complaint can be raised aboutmodeling. Most models in economics andpolitical science are really quite obvious. Theimportance of a model should be to clarify ourthinking and develop testable hypotheses. Fartoo often the model simply demonstrates thatthe modeler can do some math rather thanincreasing our insights into the intuition of theright problem.

3 I do not mean that large cross-countrystudies do not have merit but only that theanalyst needs to take care with fully

understanding the data used to measure theindependent and dependent variables.

4 The New Institutional Economics drawsinsights from across the social sciences as wellas law. It is a turn-around for economists who,in the spirit of Gary Becker, were imperialistsin the other social sciences. Many NIEeconomists are importers from other disciplines:Anthropology, Law, Political Science,Psychology, and Sociology. “AnalyticNarratives” is the title of a book of case studiescompiled by Robert Bates, Avner Grief, MargaretLevy, Jean-Laurent Rosenthal, and BarryWeingast.

5 By “historical” I mean an approach thatrelies on quantitative and qualitative evidence,which has been one of the hallmarks of historicalresearch.

6 Anthropologists as well as scholars inbusiness schools have relied on surveys for along time.

7 Coase is clearly a theorist in the SherlockHolmes mold. His article on private lighthousesis a great example of pointing out the folly ofpurely relying on inductive theory forpredictions.

8 Paul Joskow and Victor Goldberg weretwo of the scholars who first worked on theissue of long-term contracting and verticalintegration.

9 The work of Oliver Williamson, alongwith Coase, may have had the greatest impacton theorists working on contract theory.

10 Douglass C. North was the pioneer intaking “micro” concepts and using them to buildan analysis of changes over time. It is importantto note that North has been careful not to referto his work as theory. Indeed, North, like Coase,maintains that economists are far too hasty inmodeling an issue before they fully understandthe issue. See in particular North (2005).

11For possible explanations for“institutional lock-in” see Alston and Mueller(2005).

12 The work of Acemoglu, Johnson andRobinson falls into this category.

13 See Levy and Spiller (1994) for ananalysis of the impact of political determinantson regulatory outcomes fortelecommunications.

14 Franchising is a good example of aneconomic outcome for a micro case study.

15 This section draws heavily on Alstonand Mueller (2005), Alston, Libecap and Mueller(1999) and Alston, Libecap and Schneider(1996). See Libecap (1989) for a early discussionof property rights which relies on case studiesfrom which he draws generalizations.

16 The work of Erica Field on titling inPeru is a recent addition to the literature onimpact of secure property rights on economicbehavior.




1 A quantitative model can be character-ized as a construct that is represented by a set oflogically — and in this case — quantitativelyconnected variables. Quantitative models ofpolitical economy can include formal analysis(modeling) and applied statistical analysis. For-mal analysis (i.e., social choice, linear differ-ence equations, and differential equations) re-fers to deductive modeling in a theorem andproof presentation or computational modelingthat requires the assistance of simulation. Ap-plied statistical analysis involves data analysis(from experimental or secondary sources) us-ing statistical tools.

2 Order is defined as “the selection of oneset of appearances rather than another becauseit gives a better sense of the reality behind theappearances” (Bronowski 1978: 48).Bronowski is critical of what he believes is themisuse of the term cause and prefers to link itwith probabilistic statements — chance — which“replaces the concept of the inevitable effectby that of the probable trend” (p. 87).

3 Because inductive inference or logic in-volves deriving a reliable generalization fromobservations, the premises make a probabilisticstatement about a conclusion.

4 Note that deductive inference can beused to “supplement” inductive inference as well.The issue is the unification of both.

5 For example, Seawright and Collier defineidentification as “The process of demonstratingthat the researcher has sufficient information(typically involving the number of data-set

observations) to produce estimates of theparameters in a given causal models” (Bradyand Collier 2005: 303).

6 See http://cowles.econ.yale.edu/about-cf/about.htm.

7 A lesson on these early developments isthat the acceptance of statistical methodologyhas been motivated by substantive problems.Some methodological contributions of politicalscience have centered on voting behavior (seeGow 1985) while for economics macrocontributions have been on the business cycle(Tinbergen 1937, 1940). While quantificationincludes formal and applied statistical (empirical)approaches, this essay emphasizes changes fromthe applied statistical side.

8 Following Haavelmo (1944), thisprobability approach involved the definitionof a precise stochastic model representing thephenomenon under study and the generation ofthe data. Inference was to be determined withinthe framework of a complete model, where themodel is characterized by as “many relationshipsas variables to be explained” (Morgan 1990:114). The application of the probabilityapproach resulted in models (built mostly byeconomists) that appear as systems of equationswith additive random terms. Estimation andtesting was done in the context of thesecomplete representations. A typical estimationprocedure was ordinary least squares.

9 Research associated with the CowlesCommission approach includes (but is not lim-ited to): Cooper (1948), Haavelmo (1943,1944), Hood and Koopmans (1953), Klein(1947), Koopmans (1945, 1949, 1950),Koopmans and Reiersol (1950), and Marschak(1947, 1953). For further background on theCowles Commission consult the following URL:http://cowles.econ.yale.edu/.

10 See Zellner (1984: 16-25) for furtherinformation on criticisms of the Cowles ap-proach.

11 Sims’ approach also deemphasizes theuse of the t-statistic.

12 Sims’ VAR approach has been used ex-tensively in quantitative political economy, but(again) more so by economists than politicalscientists. For an application in political sci-ence, see Freeman, Lin, and Williams (1989).In addition, see Freeman and Houser (1998) foran application of the RBC method and Free-man (2005) for recent developments in bothVAR and RBC approaches and their potentialapplications in political science.

13 See Morton (1999) for a comprehen-sive examination of the effort to merge formaland empirical analysis.

14 Technical details of this framework areprovided in Granato, Lo, and Wong (2005).

15 Achen (1983) describes how Kramer(1983) creates a measurement error by suggest-ing that citizens respond to income changes ina way that is not captured by the data that re-searchers use. This framework is related toKramer’s logic.

16 The error-in-variables regression modelwas the analogue for measurement error.Conditional expectations techniques were theanalogues for expectations and informationuncertainty.

17 See Granato and Wong (Forthcoming)for an example that links behavioral analoguesfor expectations and learning (i.e., adaptivelearning) with the applied statistical analogueof persistence (AR(1) process).

18 Analogues are central to this suggestedframework. Some have been created but otherswill have to be invented as the research questionsdemand them. For example, one can have amodel and test that has changing parameters,but not follow the path of Lucas (1973).

19 One could envision a mix of rank andorder-type conditions in conjunction withExtreme Bounds Analysis (EBA) (Leamer1983).

20 Since 1854 the three longest peacetime(or otherwise) economic expansions in theUnited States occurred after World War II (seehttp://www.nber.org/cycles.html).



general announcementsgeneral announcementsgeneral announcementsgeneral announcementsgeneral announcementsintroduction of apsa working groups at 2005 annual meeting

APSA has introduced a program of Working Groups on Political Science at its 2005 Annual Meeting. The Annual MeetingWorking Group is a small group of meeting attendees interested in a common topic who agree to attend panels and plenariesaligned with the topic and convene 2 or more times at the meeting for discussion of them. The idea is to simulate a workinggroup conference experience amidst the panels. We hope Section Members will be interested in sponsoring or

participating in a Working Group in their area of specialization.

Contact Ebony Ramsey at [email protected] if you are interested. You can find more information on organizing orsigning up for an AMWG by visiting http://www.apsanet.org/section_584.cfm

* Jim Granato is Visiting Scientist and Politi-cal Science Program Director, National Sci-ence Foundation, Suite 980, 4201 Wilson Bou-levard, Arlington, Virginia 22230 (e-mail:[email protected]). Thanks to Mary Bange, BillBernhard, Lawrence Broz, Michelle Costanzo,Mark Jones, and Frank Scioli for their assis-tance. The views and findings in this paper arethose of the author and do not necessarily re-flect those of the National Science Foundation.


17 The framework accommodates any forcethat either increases (or decreases) demand orsupply.

18 Designing the survey ourselves not onlyallowed us to construct the proxies for testingthe determinants and impact of property rightsbut it gave us a thorough understanding of theissue prior to modeling and testing.

19 We estimated a three-equation modelwith dependent variables as title (0,1), land valueper hectare, and land investment (% of hectaresthat received site specific investments in eitherpermanent crops or pasture requiring costlyfencing).

20 The degree to which one can extrapolatedepends on thorough understanding of the roleof title in a given society. Extrapolating to therest of the world is analytically dangerous unlessone is cognizant of the local formal andinformal institutions.

21 This section draws primarily from Alstonand Gallo (2005).

22 The Justices were independent but as istrue in most countries, the Justices belonged tothe upper classes and therefore were more likelyto represent the interests of the higher socio-economic class.

23 In Alston and Gallo (2005) we performan econometric counterfactual using countylevel allegations of fraud as an explanatoryvariable for the vote for Conservatives. Theresults indicate that in the absence of fraud the

Conservatives would have lost in the Provinceof Buenos Aires and most likely lost control ofthe Presidency.

24 In Alston and Gallo (2005) we performan econometric estimation for the determinantsof voting for Juan Peron. One of theexplanatory variables is fraud in the 1930s. Ourresults indicate that those provinces where fraudwas the greatest voted most heavily for Peron.Indeed without fraud our results indicate thatPeron would not have been elected. Additionalcircumstantial evidence comes from theProvince of Cordoba located in the richagricultural Pampas. In Cordoba theconservatives refrained from fraud in the 1930sand lost the elections but Cordoba continued tovote for the Radical Party and received morevotes than Peron in the Presidential election of1945.

25 The U.S. confronted a similar turningpoint in its institutional history but theelectorate in 1896 came down on the side ofmaintaining the independence of the SupremeCourt. In the election of 1896, the SupremeCourt was under assault and one of its Republicandefenders presaged the future of Argentina:“There are two places in this country where allmen are absolutely equal: One is the ballot-boxand the other is the Supreme Court. Bryan (thePopulist candidate) proposes to abolish theSupreme Court and make it the creature of theparty caucus whenever a new Congress comes

in…” [Westin, 1953, p. 37]26 See, Gallo (2003), for the econometric

tests that determined the break point forArgentine GDP per capita with respect toAustralia.

27 Examples of the institutional volatilityare abundant: The military government in 1955removed all the Justices of the Supreme Courtand nullified the Peronist constitutional reformof 1949 by a simple Decree. In 1958 the newDemocratic President replaced most of theJustices of the Court and introduced two newJustices. Successive governments frequentlyeither forced judges to resign or impeachedthem. On the economic side, stop and go policiescharacterized the post-Peron years. See Spillerand Tomassi (2003) for elaboration on policyvolatility.

28 The recent (January 2005) default byArgentina on its debt obligations illustrates thispoint.

29 This works draws on Alston and Ferrie(1999).

30 In 1960 Southern farmers still harvested50% of the cotton crop by hand. We tooktechnological change as exogenous in ouranalysis.


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