Credible Commitments and Investment: Does Opportunistic Ability or Incentive Matter?

Abstract

Private investment increases in a cross‐country panel when formal institutions (e.g., term limits) do not constrain executives' planning horizons. This evidence is consistent with institutions that encourage reputation‐building checking opportunistic incentives and extends evidence from domestic public choice applications to an international political economy setting. In addition, investment exhibits a nonmonotonic relationship with a polity's veto players. This relationship may reflect trade‐offs between constituents' monitoring‐capacity and agents' opportunistic ability. It may also highlight a channel through which lock‐in effects retard neoclassical convergence and thus motivate different normative prescriptions than those emerging from contributions where institutions and real activity must exhibit a monotonic relationship. (JEL D72, D78, E61)

Aggregate Health Expenditures, National Income, and Institutions for Private Property

“…Protection and Checks, respectively), and formally evaluating the potential for omitted variables to create bias, the present research appears less susceptible to this difficulty than do received investigations that rely exclusively on input-based measures (e.g. see Falaschetti, 2003). McCarty also highlights a potential difficulty that neither type of institutional proxy addresses -i.e.…”

“…Qualitatively similar evidence also appears for contemporary governance structures (e.g. see AJR, 2001;Falaschetti, 2002Falaschetti, , 2003Rodrik et al, 2002;Stasavage, 2002). 9 At the very least, then, the institutions and commitment literature suggests that equations (1) and (2) should be estimated recursively.…”

“…Fogel (1999), Gerdtham et al (1992), Getzen & Poullier (1992), Newhouse (1997) National income (e.g. GPD) Acemoglu et al (2001), Falaschetti (2003, Henisz (2000), Knack & Keefer (1995), North & Weingast (1989), Stasavage (2002) Institutions for private property C A B Aggregate health expenditures Figure 1. Relating the present research to the literature.…”

“…Notes: Contributors to the ''institutions and commitment'' literature evaluate how systems of checks and balances relate to productive economic activity (e.g. see Acemoglu et al, 2001;Falaschetti, 2003;Henisz, 2000;Knack and Keefer, 1995;North and Weingast, 1989;Stasavage, 2002). Contributors to the ''health expenditures'' literature evaluate how aggregate budget constraints relate to health spending (e.g.…”

“…Here, just as protective institutions can encourage physical capital's accumulation (e.g. see Falaschetti, 2003;Stasavage, 2002), they might also encourage human capital's accumulation (e.g. in the form of health stocks).…”