Comments on “How (Not) to Measure Institutions” by Professor Stefan Voigt

Philip KeeferDevelopment Research Group, The World

Bank

Key points

SV: Measures of institutions should

• Capture de jure and de facto institutions (or,equivalently(?), formal and informal institutions).

• be objective.• be disaggregated.

PK: These are important, desirable standards. But application to two key questions is not clear.

• How do we measure the security of property rights≈ no opportunistic behavior by government?

• How do we measure the determinants of secure property rights?

Security of property rights?

Lots of smoke in the literature. • Rule of law is hard to define.• Subjective is worse than objective.• Aggregated is worse than disaggregated.• ALL TRUE!

But ceteris is not paribus:• no objective, disaggregated measures of

threat of opportunistic behavior.• And yet theory and qualitative evidence

indicate this is a first order concern in development.

• Hence: scholarly and policy communities (more or less) embrace subjective indicators.

Measuring threats of gov’t. opportunism

Subjective measures variously labeled “risk of expropriation”, “rule of law” , etc. Problems:

• Noise: low opportunism countries can be rated as high opportunism.

• Misattribution: they pick up other unobserved, growth-damaging features of countries

Appropriate response – throw out bath water, not baby:

• Ignore differences between Thailand and Malaysia, Canada and the US, or Brazil and Mexico. (bath water)

• DON’T ignore conclusions based on comparisons across many countries. (baby)

Measures of Institutions

Attempts to use institutional measures as proxies for threat of opportunistic behavior. Problematic.

• Assumes that institutions are the main drivers of opportunistic behavior.

• Assumes that the institutions we measure are the most important.

• Both may be incorrect.Exposes, instead, an important research agenda:

• under what conditions do governments refrain from opportunistic behavior?

• Institutional debate REINFORCES dependence on subjective measures of opportunism!

Institutional measures and opportunism

Presumed institutional determinants of opportunism:“Tail wagging the dog” constraints on political opportunism:

• Judicial independence• Central Bank Independence (opportunistic

behavior in monetary policy)• Problem: agency independence is a function

of politics (Keefer/Stasavage and many others)

Political institutions:• Political checks and balances (Subjective –

Polity; Objective – Henisz or Database of Political Institutions)/

• Democracy (Subjective – Polity; Objective: DPI, Przeworski, et al.)

• Problem: No controls for political incentives

Missing: the politics of opportunistic behavior

Institutional puzzle of opportunistic behavior:• Some democracies/non-democracies restrain

opportunism - many don’t.• Some parliaments check abusive behavior by

executive –many don’t.• Democracy and checks measures don’t capture

these distinctions.

Poor non-democ-racies

Poor democ-racies

Rich democ-racies

Corruption (0 – 6, least corrupt = 6), 1997

2.7 2.9 4.1

Bureaucratic quality (0 – 6, 6 = highest quality), 2000

2.3 2.4 4.6

Rule of law (0 – 6, 6 = highest quality), 2000

3.7 2.9 4.6

Need more thought/evidence on political incentives to secure property

rightsSecure property rights = public good.

• Opportunistic behavior reduces growth, hurting everyone.

• So pursue indicators of government incentives to provide public goods that vary within dems/non-dems (e.g., of “political market imperfections”).

Putting the politics into institutions

Within dems:Types of electoral institutions (PR, list)Measures of credibility of political promises

• Types of political parties (programmatic/not)• Age of democracy

Within non-dems: intra-ruling party characteristics? Can leaders make credible promises to party members?

• Age of party?• Internal checks on leaders?• Information distributed to members?

Sources? Unfinished agenda. But: Database of Political Institutions (WB); Cline Center for Democracy (U. Ill, Champaign).

Need more nuanced institutional data

Within dems:• Budget process, Exec – Parliament• Intra-parliamentary decision making• Rules for candidate selection

Sources: few, now, but Cline Center for Democracy. . .

In sum. . .

The world needs a better mousetrap to measure threat of opportunistic behavior. . .

. . . but an objective indicator not on the horizon.

Better place to put resources: improving empirical basis for investigating determinants of opportunistic behavior.

• Measuring political incentives• Measuring public sector characteristics (pub.

sec fin. mgt; civil service; judiciary; etc) – at least as intermediate determinants of opportunism.