Why Pay the Chief? Land Rents and Political Selection in Indonesia

Gedeon J. Lim (Boston University)

Abstract : Much of modern development efforts are channeled through traditional local governance. Yet, despite their importance as politician-bureaucrats, local leaders are rarely paid a living wage. This paper studies the effect of awarding chiefs cultivation rights over village rice land, a stable revenue generating asset, during their term of office. Using a fuzzy spatial regression discontinuity design, I exploit a historical natural experiment in Java where in the nineteenth century a homogeneous region was split, and in one part chiefs were awarded cultivation rights but not in the other. To measure political outcomes, I collect original data from the field tracing the modern electoral history of 931 chiefs in 193 villages. Higher land rents cause positive chief performance and economic development. Chiefs raise more funds and construct more public goods such that areas under their control are richer and more developed even today. I find evidence consistent with historically positive political selection as a key mechanism. Higher rents attracted better quality chiefs in the past. These chiefs were so effective at educational provision that the entire village today remains more educated. As a result, despite higher land rents attracting a higher quality pool of candidates today, neither candidates nor chiefs today are more selected compared to the average villager. Instead, positive development outcomes today are shaped by the selection of chiefs whose interests are aligned away from supra-village elite interests. Overall, my findings provide evidence that paying local leaders from a stable source of local revenue can be good for economic development.

The Price of Power: Costs of Political Corruption in Indian Electricity

Meera Mahadevan (University of California, Santa Barbara)

Abstract : Political capture of public electricity provision may benefit targeted consumers through informal subsidies. However, this causes leakages in utility revenues, inhibiting their ability to reliably supply electricity to the broader consumer base. Using a close-election regression discontinuity design, and a confidential dataset on the universe of geo-coded electricity bills from a large state in India, I show that billed electricity consumption is lower for constituencies of the winning party after an election. However, actual consumption, as measured by satellite nighttime lights, is higher for these regions. I find new evidence to explain this discrepancy -- politicians illicitly subsidize their constituents by systematically allowing the manipulation of electricity bills. To address this corruption through policy, it is important to measure the size of the welfare losses, and compute demand elasticities. I develop a method to estimate elasticities in the presence of data manipulation by leveraging exogenous variation from policy-led price changes and predictive analytics. The net deadweight loss I estimate is large enough to power 3.7 million rural households over an electoral term.

Corrupt Bureaucrats: the Response of Non-elected Officials to Electoral Accountability

Michele Valsecchi (New Economic School)

Abstract : Modern state bureaucracies are designed to be insulated from political interference. Successful insulation implies that politicians' electoral incentives do not affect bureaucrats' corruption. I test this prediction by assembling a unique dataset on corruption, promotions and demotions for more than 4 million Indonesian local civil servants. To identify the effect of reelection incentives, I exploit the existence of term limits and a difference-in-difference strategy. I find that, in districts where politicians can run for reelection, bureaucrats' corruption is 38 percent lower than in districts where they cannot, and that the effect is driven by both top and lower level bureaucrats, which constitutes new evidence of the deep, far-reaching effects of politicians' accountability on local civil servants. Robustness tests, including placebo estimates, the control for politicians' ability and restricting the sample to close elections, support the main findings. I then explore a mechanism where bureaucrats have career concerns and politicians facing reelection manipulate such concerns by increasing the turnover of top bureaucrats. Consistent with this mechanism, I find that reelection incentives increase demotions of top bureaucrats and promotions of administrative bureaucrats.