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Candidates competing for political office give promises to voters. There are no legal restraints preventing incumbents from breaking their electoral promises. This paper models campaign promises as pure cheap talk and asks why is it influential. We propose that a candidate's campaign promises are a partially revealing signal of her policy preference type. The incumbent's policy choice is yet another signal of her type. Policy choice is a costly signal (unlike campaign promises). The incumbent keeps her electoral promises in order to preserve ambiguity about her type, which is necessary to assemble a winning majority for reelection. She keeps her promises regardless of information about the efficiency of different public policies which she receives upon taking office. Therefore, campaign promises generate inefficiencies in public policy.

Transition provides an unexplored opportunity to study how changes in ownership affect structure and human resource policies of firms. We investigate a unique data set (17 years, 1500 white collar workers) of a Russian insider-privatized firm. In contrast to conventional beliefs about insider-privatized firms, there is much evidence for restructuring.However, the firm becomes "toploaded". There is massive hiring from the outside, in particular, for higher tiers in the hierarchy. As there is also less exit, in particular, from higher levels, previously existing career paths are blocked. This potentially distorts the incentives for investment in firm-specific human capital. We argue that weak property right enforcement may be the reason for our observations, and thus identify a novel channel through which institutions may affect firm efficiency.

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