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Essays on the political economy of institutional reforms

Hosseini, Amir (2019). Essays on the political economy of institutional reforms. (Unpublished Doctoral thesis, City, University of London)


This theses consists of three chapters. In chapter one, firms collude in a lobby which takes the initiative of a game by transferring money to a regulator who is in charge of determining the industry size. Transfers are intended to influence the regulator to limit the industry size relative to the case of unregulated entry. The regulator’s objective function weights both personal welfare and social welfare, with a greater weight on the former indicating a higher degree of selfishness and less concern about societal expectations. Chapter one investigates the effects of varying this weight as well as the effects of changes in the technology and the fixed cost. The model shows that corruption turns out to be non monotonic in the regulator’s level of selfishness. This implies that higher level of the regulator’s selfishness may, counter intuitively, end to lower corruption. The model suggests that in both the case of a very high cost technology and the case of a high fixed cost of entry, both corruption and social welfare are (1) lower in magnitude and (2) less sensitive to the regulator’s level of selfishness. Therefore, lowering entry cost or marginal costs can increase corruption. Chapter two introduces the probability of apprehension which can punish both the regulator and the lobby for bribery. The model investigates the effect of implementing two policies: deregulation by means of lowering entry costs and deterrence by improving the detection technology. The results suggest that enhancing the detection technology may not necessarily decrease corruption. The effect of the detection technology on corruption might be different for different levels of the regulator’s selfishness. In addition, reducing bureaucratic entry costs may only lead to an increase in social welfare and a decrease in corruption for a certain range of values for the regulator’s selfishness. Hence, the regulator’s type plays a key role in determining the economic outcomes. Chapter three presents a three-tier hierarchical model, comprising of three players: a politician, a regulator, and a lobby. The politician’s problem is to optimize the combination of two policy reforms of deregulation and deterrence in order to maximize his chance of re-election, which is positively influenced by a modified measure of social welfare, in which producer versus consumer surplus can play asymmetric roles in increasing the re-electability of the politician. By letting the type of the politician and the regulator to be varied in a continuous range, the model enables us to have a more detailed picture of the comparative statics of changes in policymakers’ type on outcomes of the model. An incumbent politician can be categorized into four different types: oligarchic, semi oligarchic, semi-populist and populist depending on the relative importance of producer as opposed to consumer surplus in increasing electability. Moreover, based on parameters of the model and namely the level of the politician’s populism, the regulator may receive zero-bribe or positive-bribe, depending on his own selfishness type. The model shows that an increase in the regulator’s selfishness may only harm semi-populist and populist politicians’ chance of success, not that of oligarchic and semi-oligarchic politicians. Comparative statics of the model also show that the players’ characteristics are of lower importance when parameters of the model lie in extreme values. Therefore, the regulator’s level of selfishness has almost no effect on relatively highly populist or relatively highly oligarchic politicians. Policymakers of extreme values, whether the politician or the regulator, decides more independent of other parameters of the model. The model predicts that in two similar economies, the one with a higher level of the politician’s populism may involve a wider range of regulators in the bribery process. Moreover, a politician with a higher level of populism is more sensitive to the level of the regulator’s selfishness. Therefore, the type of the politician matters as it determines the sensitivity of other variables of interest to the regulator’s type. Whether having a more populist politician in the office ends up in lower corruption or not, depends on other parameters of the model, namely the regulator’s level of selfishness.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HC Economic History and Conditions
Departments: Doctoral Theses
School of Policy & Global Affairs > Economics
School of Policy & Global Affairs > School of Policy & Global Affairs Doctoral Theses
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