Events at CERGE-EI

Dissertation Committee:
Libor Dušek (chair)
Randall Filer
Byeongju Jeong
Štěpán Jurajda
Peter Katuščák
Gérard Roland

Abstract:

This thesis investigates how the economy and social institutions affect each other. Specifically, the first chapter analyzes the interaction between politics and the economy: how the political parties form a coalition in the government to implement their preferred fiscal policy. The second chapter examines the effect of criminal law reform on the behavior of agents in the court process in the United States, applying econometric methodology. The last chapter statistically reports on the change in the emissions of local air pollutants in the Czech Republic, reflecting the new requirement of EU regulations and economic growth during the transition period.

The first paper examines how the two dimensions of heterogeneity of people in society, income disparity and ethnic diversity, affect the government formation and eventually the reallocation of income. A legislative bargaining model is constructed to investigate how political parties, whose platforms are distinguished by the ethnicity and income group they belong, form a coalition and enter a government. The result of the model, where the agenda setter gives the minimum to the partner, suggests that the preferred partner in a coalition is the group with the smaller population size (cheaper to buy) and lower income level (easier to tax), which are quite intuitive results, considering the minimal(minimum)-winning coalition theory. Further the model is extended from a one-round to a two-round game. In fact, the extended model shows that forming an oversized coalition might be the optimal strategy, which is consistent with the empirical findings in some developed countries such as Denmark or Sweden.

The second paper analyzes the effect of criminal law reform on the behavior of agents during litigation and is coauthored with Libor Dušek. We investigate behavioral responses of judges and prosecutors to more severe punishments by analyzing the effects of Truth-in-Sentencing (TIS) laws in a large sample of individual criminal cases in the United States. The TIS laws raised effective punishment by requiring offenders to serve at least 85% of their imposed sentence in prison. Differences between the states in the timing of adoption and the types of crimes covered provide a source of identification. The key findings are: (1) The TIS laws reduced the probability that an arrested offender is eventually convicted by 8% through an increase in the probability that the case is dismissed, a reduction in the probability that the defendant pleads guilty, and a reduction in the probability that the defendant is convicted at trial. (2) The TIS laws reduced the imposed sentence that a defendant may expect upon arrest by 2%. The behavioral responses are empirically important to partially mitigate the intended deterrent effect of the TIS laws.

The third paper statistically documents how the relationship between economy and environmental degradation changes under the regulation and is coauthored with Milan Ščasný. We statistically decompose the change in the emission level of the various air pollutants such as SOx, CO, NOx, VOC and particulate matters (PM) in the Czech Republic. First, we decompose the emission level in 1995-2007 into three factors: the emission intensity effect, the scale effect, and the composition effect. We find that the implementation of command and control type laws which require large sources of emissions to satisfy emission limits till 1999, highly correlates with a reduction in the emission levels of SOx, NOx, CO, and PM. Moreover, the reduction was mainly induced by a change in the emission intensity effect, which captures the environmental efficiency relative to the per capita GDP. We further decompose emission intensity effect into three factors for a more refined analysis: (1) fuel intensity effect (2) fuel mix effect, and (3) emission coefficient effect. We find that the emission coefficient effect is the most prominent factor, especially during the period of 1995-1999. In other words, command and control regulation motivates firms to decrease their emission levels by improving abatement technology, which reduces the emission amount given the same amount of fuel.

Full Text: “Essays on Social Institutions and Economics” by Fusako Tsuchimoto Menkyna