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Abstract:
This study examines the role of political connections in firms' financing strategies and their long-run performance. We view political connections as an example for domestic arrangements which can reduce the benefits of global financing. Using data from Indonesia, we find that firms with strong political connections are less likely to have publicly traded foreign securities. As a result, estimates of the performance consequences of foreign financing are severely biased if value-creating domestic arrangements such as political relationships are ignored. Connections not only alter firms' financing strategies, they also influence long-run performance. Tracking returns across several regimes, we show that firms have difficulty re-establishing connections with a new government when their patron falls from power, leading closely connected firms to underperform under the new regime and subsequently to increase their foreign financing.

Cross listing, Financing choices, Emerging markets, Asian financial crisis, Indonesia, Disclosure

Abstract:
This study examines the role of political connections for firms' financing strategies and their long-run financial performance. We view political connections as an example for domestic arrangements which can reduce the benefits of global financing. Consistent with this argument, we find that firms with close political ties are less likely than firms with weak connections to have publicly traded foreign securities. We also show that estimates of the performance consequences of foreign financing are severely biased if value-creating domestic arrangements such as political connections are ignored. Political relationships not only alter firms' financing strategies, they also impact the long-run performance of companies. Tracking returns across several changes in regimes, we document that firms have difficulty re-establishing connections with a new government when their patrons fall from power. As a result, closely-connected firms underperform under new regimes and subsequently increase their foreign financing.

Cross listing, Financing choices, Emerging markets, Asian financial crisis, Indonesia, Disclosure

Abstract:
The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using liquor control in the United States over the period 1934-70 as a case study. The results are reassuring: States with more heterogeneous preferences are more likely to decentralize liquor control and allow for local government decision making.

Abstract:
The economic theory of federalism is largely built around the premise that more heterogeneous preferences result in more decentralized policy-making. Despite its prominence and importance, this central tenet of economic federalism has never been empirically evaluated. This paper presents the first formal test of the link between preference heterogeneity and endogenous policy decentralization using liquor control in the United States over the period 1934 to 1970 as our case study. The results are reassuring: states with minority groups that feel more strongly about liquor are more likely to decentralize liquor control and allow for local government decision-making.

Abstract:
Purpose - This paper provides a systematic comparison of the level of business diversification in China and eight other large economies for the 2001 to 2005 period. We investigate reasons why Chinese firms are more diversified than companies elsewhere.

Design/methodology/approach - We collect data on the number of business segments in which publicly traded companies operate from the Thomson One Banker database. We analyze the data using nonparametric tests and regression analysis.

Findings - The mean number of business segments per firm varies significantly by country. Notably, there is no evidence in our sample that emerging-market companies are systematically more diversified than their developed-market counterparts. In most countries, firms have become less diversified over time. However, there is no such trend in China. The level of diversification of Chinese enterprises does not vary over our study period (2001-2005), making Chinese firms the most diversified in our sample by 2005. China's growth rate does not seem to explain the higher level of firm diversification. However, we find that Chinese state-owned enterprises diversify their operations more aggressively than other Chinese firms.

Research limitations/implications - Ownership data and business group affiliations were not available for all firms in our sample, making it difficult to control for these effects across economies.

Practical implications - Government involvement in state-owned enterprises may be contributing to a divergence in the pattern of business diversification between China and other economies.

Originality/value - This paper quantifies anecdotal evidence that Chinese firms are more diversified than similar firms in other countries.

Diversification, Scope, State-owned enterprises, China, Business segments

Abstract:
Policy-makers often rely on public opinion polls to decide which political projects to pursue. We study how the use of opinion polls influences policy outcomes if respondents feel pressured to offer "socially desirable" views when answering the pollster's questions. Our results indicate that this type of social pressure leads to second-best policy outcomes even if politicians are aware of the bias. The context for the empirical part of our study is the siting of a radioactive waste repository in Pennsylvania. We model the local politicians' decision to support this facility as guided by economic concerns and by social pressure. We find that social pressure is critical for an explanation of local policy-making.

Abstract:
Discriminatory hiring practices, while of substantial empirical and theoretical interest, are notoriously difficult to document. This paper compares hiring practices in the United States and in Switzerland, using an experimental setup that allows me to isolate the effect of firm decisions on the probability of being invited to a job interview. Firm behavior in these two markets is strikingly different. While businesses operating in Switzerland discriminate heavily against the long-term unemployed, I find no evidence for discriminatory practices among U.S. firms.

discrimination, duration dependence, labor market institutions

Abstract:
We analyze the behavior of game-show contestants who play a one-shot game called Friend or Foe. While it is a weakly dominant strategy not to cooperate, almost half the contestants on the show choose to play "friend." Remarkably, the behavior of contestants remains unchanged even when stakes are very high, ranging from $200 to more than $10,000. We conclude that the frequent cooperation observed in one-shot social dilemma games is not an artefact of the low stakes typically used in laboratory experiments. Strategic decisions on Friend or Foe change markedly if players can observe previous episodes. We show that these contestants play "friend" if they have reason to expect their opponent to play "friend," and they play "foe" otherwise. The observed decisions are consistent with recent fairness theories that characterize individuals as conditional cooperators. Using information about past play, some groups (e.g., pairs of women) manage to stabilize cooperation in this high-stakes environment. For most others, improved coordination implies a drastic decline in monetary winnings. Prior to playing the social dilemma game, contestants "produce" their endowment by answering trivia questions. We find some evidence for reciprocal behavior: Players who produce fewer correct answers for their team are more likely to cooperate in the social dilemma game.

Abstract:
Political outcomes are well understood to depend on the spatial distribution of citizen preferences. In this paper, we document that the same holds for the individual decision to be politically active. Using both cross-sectional and longitudinal evidence on turnout, we show that citizens are more likely to vote if they live in a jurisdiction with a larger number of persons sharing similar political preferences. As a result, changes in the identity of a district's median citizen lead to even larger changes in the identity of its median voter, a phenomenon we term electoral acceleration. We present evidence that electoral acceleration is in part due to the structure of media markets. Candidates find it easier to direct campaign efforts at larger groups because many existing media outlets cater to this audience.

Abstract:
We analyze the behavior of game-show contestants who play a one-shot game called Friend or Foe. While it is a weakly dominant strategy not to cooperate, almost half the contestants on the show choose to play 'friend.' Remarkably, the behavior of contestants remains unchanged even when stakes are very high, ranging from $200 to more than $10,000. We conclude that the frequent cooperation observed in one-shot social dilemma games is not an artefact of the low stakes typically used in laboratory experiments. Strategic decisions on Friend or Foe change markedly if players can observe previous episodes. We show that these contestants play 'friend' if they have reason to expect their opponent to play 'friend,' and they play 'foe' otherwise. The observed decisions are consistent with recent fairness theories that characterize individuals as conditional cooperators. Using information about past play, some groups (e.g., pairs of women) manage to stabilize cooperation in this high-stakes environment. For most others, improved coordination implies a drastic decline in monetary winnings. Prior to playing the social dilemma game, contestants 'produce' their endowment by answering trivia questions. We find some evidence for reciprocal behavior: Players who produce fewer correct answers for their team are more likely to cooperate in the social dilemma game.

Abstract:
In situations of excess demand, many firms use waiting lists to allocate products and services among their customers. The resulting allocation is likely to be inefficient, creating opportunities for Pareto improving trades among those who are waiting in line. Yet, in the queuing context, the trading of places is rare and inefficiencies often persist over time. In this paper, I report the results of a field experiment which allows randomly selected customers to earn up to $10 for letting a stranger cut in line. The higher the offer, the more likely it is that individuals let someone cut in. But while a majority agrees to wait longer, only a small minority accepts the monetary reward. Trading in this market is constrained by multiple social concerns. The obligation not to exploit situations of excess demand and efficiency considerations influence the willingness to let a stranger jump the queue.

Abstract:
For industries ranging from software to pharmaceuticals and entertainment, there is an intense debate about the appropriate level of protection for intellectual property. The Internet provides a natural crucible to assess the implications of reduced protection because it drastically lowers the cost of copying information. In this paper, we analyze whether file sharing has reduced the legal sales of music. While this question is receiving considerable attention in academia, industry, and Congress, we are the first to study the phenomenon employing data on actual downloads of music files. We match an extensive sample of downloads to U.S. sales data for a large number of albums. To establish causality, we instrument for downloads using data on international school holidays. Downloads have an effect on sales that is statistically indistinguishable from zero. Our estimates are inconsistent with claims that file sharing is the primary reason for the decline in music sales during our study period.

Abstract:
Local opposition to many projects makes it increasingly difficult to find sites for socially desirable facilities. As has been widely documented, compensation for local disamenities does not increase the level of support. An empirical analysis of the Swiss search for a nuclear waste repository even reveals decreased acceptance due to the rejection of bribes and the crowding-out of public spirit. However, a "compensation cycle" may be exploited to finally win the support of host communities. As siting issues are decided in the realm of politics, an economic theory of compensation must focus on the interplay between morals and markets.