Middleman Minorities and Ethnic Violence: Anti-jewish Pogroms in Eastern Europe

Irena Grosfeld (Paris School of Economics)
Seyhun Sakalli (University of Lausanne)
Ekaterina Zhuravskaya (Paris School of Economics (EHESS))

Abstract : We present evidence to reconcile two seemingly contradictory observations: on the one hand, minorities often choose middleman occupations, such as traders and moneylenders, to avoid competition with the majority and, as a consequence, avoid conflict; on the other hand, middleman minorities at times do become the primary target of persecution. Using panel data on anti-Jewish pogroms in Eastern Europe between 1800 and 1927, we document that ethnic violence breaks out when crop failures coincide a sharp increase in uncertainty about the future. In contrast, in times of relative political stability, negative economic shocks do not instigate violence against middleman minorities. This suggests that violence against middleman minorities breaks out when discounted value of future services of middlemen for majority falls due to an increase in discount rates. We show that pogroms primarily affected localities where Jews dominated the credit sector as opposed to any other intermediary profession, including trade in agricultural goods, suggesting that it is not the middlemen nature of the Jewish occupations per se that pogroms during the intersection of economic and political crises, but the long-term character of the lending transactions such that resolution of uncertainly takes place in the interim of a transaction.

Gangs of New York: Organized Crime As the Link Between Inequality and Corruption

Soeren C. Schwuchow (Brandenburg University of Technology)

Abstract : Empirical evidence on the causes and effects of inequality suggests the existence of a vicious circle of mutually reinforcing inequality, corruption, and weak institutions. Despite the broad empirical evidence, there are only a few formal theoretical models on these dynamics. Relying on a game-theoretic approach, we show how inequality and corruption/institutional quality are interconnected via a crime channel. According to our model, collusion between law enforcement agencies and criminal organizations is more likely in societies characterized by high inequality and/or weak security forces. If those actors collude and, thus, eliminate public security, the citizens are exploited to the greatest possible extent and inequality is perpetuated. At the same time, those societies feature high levels of corruption and criminal activity. Surprisingly, our results allow for the interpretation that policies of lowering inequality or increasing the effectiveness of local police forces may be ineffective countermeasures. We instead suggest that those societies should intervene with non-local law enforcement agencies in order to (re-)establish the rule of law. That measure had been successfully utilized in the Colombian "War on Drugs" and, to a lesser extent, in order to contain the influence of the American Mafia in the 1960th.

Discrimination in Organizations: Optimal Contracts and Regulation

Wiroy Shin (Korea Institute for Industrial Economics & Trade)

Abstract : This paper discusses discrimination as an agency problem in hierarchical organizations and provides contractual and regulatory solutions to ameliorate the situation using mechanism design theory. Existing research (e.g., Becker (1957), Coate and Loury (1993)) studies a situation in which an individual person practices discrimination. In contrast, this paper considers a hierarchical organization in which a manager (the agent) may or may not have a discriminatory taste toward his subordinates, whereas an owner (the principal) is unbiased and only cares about profit. In this environment, I study a direct mechanism and characterize an optimal contract. Additionally, I compare the allocation implemented by the optimal direct mechanism to the first-best (full information) allocation and discuss the effectiveness of current regulations (e.g., affirmative action, taxation on the minority promotion ratio): I find that a regulator (such as the U.S. Equal Employment Opportunity Commission) can improve compliance with non-discriminatory conduct, despite the fact that the person on whom the regulation is directly incident---the principal---is not intrinsically biased. I also show that the regulation can be counter-productive if it attempts to enforce perfect fairness (the first-best allocation) when that allocation is not incentive feasible. Finally, I review the U.S. law of discrimination and analyze statutory and jurisprudential issues regarding the optimal mechanism.

Electoral Systems and Income Inequality: a Tale of Political Equality

Izaskun Zuazu (University of the Basque Country UPV/EHU)

Abstract : Do electoral institutions have an effect on income inequality? Does political inequal ity play a role in the potential aftermath of electoral rules on income inequality? This paper provides a Downsian model of political competition in which electoral systems represent differently the individuals’ preferences of income inequality. Empirically, I employ a panel data of 118 democracies during 1960-2015, and find that proportional systems might improve income inequality through its interaction with political equality. Unpacking this mechanism and understanding how it works is of crucial importance to the design of pro-equality electoral systems, and democratic institutions at large.