Research

For the Many or the Few: The Initiative, Public Policy, and American Democracy (Now in paperback!)

The initiative process is a direct democracy device that allows ordinary citizens to propose and pass laws without the involvement of their elected representatives. The process has long been controversial, with a main point of contention whether it promotes the interests of the majority or allows wealthy special interests to subvert the popular will. The book examines a century of fiscal data in order to discover whose interests are promoted by the initiative. The core of the book is evidence showing how the initiative affects fiscal policy (for example, it cuts spending and taxes), and what voters think of these effects. The evidence indicates that a majority of voters favor the policy changes brought about by the initiative, which suggests that it promotes the interests of the many rather than the few.

Download Chapter 1 (Introduction): [PDF]

Download Table of Contents: [PDF]

Buy For the Many or the Few: [Amazon] [Barnes & Noble]

Recent Op-Eds

"Prop. 1A won't cure state's overspending" (Sacramento Bee, May 15, 2009)

"Budget crisis is built on spending gone wild" (Sacramento Bee, August 15, 2008)

"Where does all that state money go?" (Los Angeles Times, July 17, 2008)

Working papers

"When Are Outside Directors Effective?," with Ran Duchin and Oguzhan Ozbas (March 2008/Updated January 2009) [PDF]

This paper uses the fact that recent regulations have required some companies to increase the number of outside directors on their boards to provide estimates of the effect of board independence on performance that are largely free from endogeneity problems. Our main finding is that the effectiveness of outside directors depends on the cost of acquiring information about the firm: when the cost of acquiring information is low, performance increases when outsiders are added to the board, and when hte cost of information is high, performance worsens when outsiders are added to the board. The estimates provide some of the cleanest estimates to date that board independence matters, and the finding that board effectiveness depends on information cost supports a nascent theoretical literature emphasizing information asymmetry. We also find that firms compose their boards as if they understand that outsider effectiveness varies with information costs.

"Disobedience and Authority," with Anthony Marino and Jan Zabojnik, forthcoming in Journal of Law, Economics, and Organization (June 2006/Updated April 2009)  [PDF]

This article presents a theory of the allocation of authority in an organization in which centralization is limited by the agent's ability to disobey the principal. We extend the concept of real authority by observing that not only does the principal have to be informed to give an order, but also the worker must be willing to follow the order. We show that workers are given more authority when they are costly to replace or do not mind looking for another job, even if they have no better information than the principal. The allocation of authority thus depends on external market conditions as well as the information and agency problems emphasized in the literature. We explore the implications of this insight for hiring policies and managerial styles.

"From Families to Formal Contracts: An Approach to Economic Development," with Krishna B. Kumar, forthcoming in Journal of Economic Development (July 2004/Updated October 2008) [PDF]

This paper develops a theory in which individuals can use one of two types of human/social capital to enforce contracts: “Local capital” relies on families and other personal networks; “market capital” relies on impersonal market institutions such as auditors and courts. Local capital is efficient when most trading is local, but only market capital can support trading between strangers that allows extensive division of labor and industrialization. We show that economies with a low cost of accumulating local capital (say, because people live close together) are richer than economies with a high cost  of accumulation when long distance trade is difficult, but are slower to transition to impersonal market exchange (industrialize) when long distance trade becomes feasible. The model provides one way to understand why the wealthiest economies in 1600 AD, China, India, and the Islamic Middle East, failed to industrialize as quickly as the West. We report an array of historical evidence documenting the pre-industrial importance of family and kinship networks in China, India, and the Islamic world compared to Europe, and the modernization problems linked to local capital. [Formerly titled "Market versus Village Social Capital."]

"50+ Years of Diversification Announcements" with Mehmet Engin Akbulut, forthcoming in Financial Review (November 2003/February 2009) [PDF]

"Direct Democracy and Public Employees" (May 2007/Updated October 2008), forthcoming in American Economic Review [PDF]

In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of the strength of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, can control these political economy problems, as proponents and some research suggests. Based on a sample of 650+ cities in 2000, I find that when public employees are allowed to bargain collectively, driving up wages, the initiative appears to cut wages by about 4 percent but has no measurable effect on employment. When public employees are not allowed to bargain collectively and patronage is a problem, initiatives appear to cut employment but not wages.

"Disentangling the Direct and Indirect Effects of the Initiative Process" (June 2007) [PDF]

"Direct Democracy and Social Issues" (May 2007) [PDF]

"Institutions and Popular Control of Public Policy" (November 2006/Updated March 2007) [PDF]