Direct and Indirect Effects of Judicial Institutions: Evidence from American Indian Reservations

Abstract:     
This study empirically evaluates the direct and indirect effects of judicial institutions on economic activity on American Indian reservations. Using a natural experiment from the legal structure of American Indian reservations, the paper provides evidence that consistent court jurisdiction leads to greater employment and more establishments for several narrowly-defined industries in reservation economies: golf courses, real estate establishments, and traveler accommodations. To test for an indirect effect of judicial institutions, the paper uses the fact that Indian casinos are required by law to be tribal enterprises, which fall outside of the purview of Public Law 280 state jurisdiction. The empirical section finds state jurisdiction is robustly related to the likelihood of a tribal government operating an Indian casino, but that controlling for establishment counts or employment in related industries reduces the estimated effect by 45 percent, and causes the effect of state jurisdiction to be statistically insignificant. This paper's findings suggest a causal chain where state jurisdiction drives economic activity on American Indian reservations, which drives the tribal government's decision to own and operate a casino. More generally, the existence of economically-important indirect effects of judicial institutions suggests that researchers face a tradeoff when attempting to estimate the effect of an institution. Narrow measures of economic activity tend to provide more credible evidence of causal effects, but broad measures are more likely to capture the full effect.

Number of Pages in PDF File: 22

working papers series