The current study evaluates the role of a democratic institution—participatory budgeting—in improving government efficiency. Participatory institutions aim to enhance governance, information sharing, and the responsiveness of political agents to citizens, leading to fiscal accountability and efficiency. Drawing from a database of 221 municipal governments in South Korea around a mandatory participatory budgeting adoption period, we find that participatory budgeting adoptions are followed by improvement in multiple dimensions of government efficiency. In particular, municipal governments experience statistically significant improvements in their fiscal sustainability and administrative efficiency. In additional analysis, we find that the efficiency improvements are more pronounced in the presence of strong mayoral leadership. Overall findings suggest that participatory budgeting programs contribute to fiscal health and administrative efficiency, above and beyond their role in securing fiscal democracy. Points for practitioners The current study suggests that participatory budget systems not only contribute to quality in democracy (as prior studies have found), but also improve fiscal efficiency and accountability by serving as a bottom-up governance mechanism. We document that introductions of participatory budgeting programs are followed by statistically significant improvements in fiscal sustainability and administrative efficiency. The results also indicate that the efficiency-improvement effect differs across municipalities, depending on their political environments. Overall, this study provides a strong argument for the participatory budgeting system by empirically supporting its efficiency-improvement effect.

We examine the effect of introducing an incentive plan based on social performance in a sample of 186 social mission–oriented firms in Korea. We find that the social performance of social enterprises (SEs) significantly improves over time after adoption of an incentive plan based on social performance, and that the incentive effect increases with managers’ perceived measurability of social performance. Moreover, we document that social bonuses do not harm SEs’ financial performance and that they have a positive spillover effect on financial performance in SEs that have a higher level of task complementarity between social and financial goals. Our results also show that when the main beneficiary of social bonuses is expected to be a firm’s employees, the incentive effect of social bonuses decreases (increases) with a firm’s focus on social controls (formal controls). In contrast, when the main beneficiary is expected to be a firm’s social mission, the incentive effect increases with a firm’s reliance on social controls. This paper was accepted by Suraj Srinivasan, accounting.

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