This paper investigates whether the industrial relations climate in Indian states has affected the pattern of manufacturing growth in the period 1958-92. We show that states which ammended the Industrial Disputes Act in a pro-worker direction experienced lowered output, employment, investment and productivity in registered or formal manufacturing. In contrast, output in unregistered or informal manufacturing increased. Regulating in a pro-worker direction was also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor.

A unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission, as opposed to profit, as an organizational goal. Such mission-oriented organizations are frequently staffed by motivated agents who subscribe to the mission. This paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency. Matching economizes on the need for high-powered incentives. It can also, however, entrench bureaucratic conservatism and resistance to innovations. The framework developed in this paper is applied to school competition, incentives in the public sector and in private nonprofits, and the interdependence of incentives and productivity between the private for-profit sector and the mission-oriented sector through occupational choice.

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The Quarterly This paper develops an approach to the study of democratic policy-making where politicians are selected by the people from those citizens who present themselves as candidates for public office. The approach has a number of attractive features. First, it is a conceptualization of a pure form of representative democracy in which government is by, as well as of the people. Second, the model is analytically tractable, being able to handle multidimensional issue and policy spaces very naturally. Third, it provides a vehicle for answering normative questions about the performance of representative democracy. "In the real world, individuals, as such, do not seem to make fiscal choices. They seem limited to choosing 'leaders,' who will, in turn, make fiscal decisions" [Buchanan 1967, p. v]. I. INTRODUCTIONThe principal role of political economy is to yield insights into the formation of policy. To this end, the model put forward by Downs [1957] has played a central role in studies of democratic settings. This paper develops an alternative theory of policy choice in representative democracies. The primitives of the approach are the citizens of a polity, their policy alternatives, and a constitution that specifies the rules of the political process. The theory builds from these to provide an account of citizens' decisions to participate as candidates for public office, their voting decisions, and the policy choices of elected representatives. No preexisting political actors are assumed, and no restrictions are made on the number or type of policy issues to be decided. Political outcomes are thus derived directly from the underlying tastes and policy technology.The paper tackles the standard case where a community elects a single representative to choose policy for one period.' Citizens care about policy outcomes, and may also have intrinsic *We thank an anonymous referee, 86 QUARTERLY JOURNAL OF ECONOMICS preferences about the identity of the representative. Citizens can also differ in their policy-making abilities. The political process is modeled as a three-stage game. Stage 1 sees each citizen deciding whether or not to become a candidate for public office. Each citizen is allowed to run, although doing so is costly. At the second stage, voting takes place over the declared candidates, with all citizens having the right to vote. At stage 3 the candidate with the most votes chooses policy.This game-theoretic structure implies that cand...

This paper develops a model of the political economy of tax-setting in a multijurisdictional world, where voters' choices and incumbent behavior are determined simultaneously. Voters are assumed to make comparisons between jurisdictions to overcome political agency problems. This forces incumbents into a (yardstick) competition in which they care about what other incumbents are doing. We provide a theoretical framework and empirical evidence using U.S. state data from 1960 to 1988. The results are encouraging to the view that vote-seeking and tax-setting are tied together through the nexus of yardstick competition. (JEL D72, H20, H71)The electoral cost of raising taxes is a stock political anecdote. However, while folk wisdom suggests that incumbents raise taxes at their peril, proper treatment of the issue recognizes that voters' choices and incumbent behavior are determined simultaneously, and that the political consequences of a tax increase may vary by circumstance. If voters are skeptical about the need for additional taxes, even a small increase may force the governor to look elsewhere for work. However, if taxes are rising everywhere, voters may be convinced that a tax increase is necessary. In this case, even a large increase may be politically acceptable. In a world in which voters make comparisons between states, incumbents may look to other states' taxing behavior before changing taxes at home. This would give rise to a kind of (yardstick) competition between jurisdictions, each caring about what the other is doing. This paper builds a model of such tax competition, where voters choose whether or not to reelect officials based on their performance while in office, using neighboring jurisdictions to evaluate the performance of their incumbents. We provide a theoretical framework and an empirical analysis that uses data from U.S. states from 1960 to 1988.Our starting point is a world with asymmetric information between voters and politicians; the latter are assumed to know more about the cost of providing public services than the former. Politicians also differ in their type. Good ones do no rentseeking, whereas bad ones finance their whims at taxpayers' expense. The problem for voters is to distinguish between the two. Consonant with the large literature on multiagent incentive schemes (see e.g., Bengt R. Holmstrom, 1982), we show that it makes sense for voters to appraise their incumbent's relative performance, if neighboring states face correlated shocks.A theoretical model of this kind predicts that the reelection performance of one jurisdiction will depend both upon the jurisdiction's own tax policy and upon that of its neighbors. In particular, if a state has high

It has long been recognized that the media play an essential role in government accountability. However, even in the absence of censorship, the government may in ‡uence news content by maintaining a "cozy" relationship with the media. This paper develops a model of democratic politics in which media capture is endogenous.The model o¤ers insights into the features of the media market that determine the ability of the government to exercise such capture and hence to in ‡uence political outcomes.We are grateful to Silvia Pezzini for research assistance and to Carolee McLeish and Simeon Djankov for providing us with data. We thank Ben Bernanke and two anonymous referees for comments. We have also received helpful advice from Stephen Coate, Torsten Persson, Juan Pablo Rud, David Stromberg and a number of seminar participants.

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