Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities - Working Paper

While, in general, I am not keen on social science results coming out of controlled lab experiments, Engel and Rockenbach's "Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities" offer an interesting though with potential large implications (if proven by field testing) for development practitioners.

 
Abstract:  

"We study the effect of voting when insiders’ public goods provision may affect passive outsiders. Without voting insiders’ contributions do not differ, regardless of whether outsiders are positively or negatively affected or even unaffected. Voting on the recommended contribution level enhances contributions if outsiders are unaffected and internalizes the negative externality by lowering contributions when outsiders are negatively affected. Remarkably, voting does not increase contributions when it would be most desirable, i.e. with a positive externality. Here, participants vote for high contributions, yet compliance is poor. Unfavorable payoff comparisons to the outsiders that gain a windfall profit drive contributions down."

In many development interventions, specially with the popularity of Community Driven Development (CDD), communities are asked to chose priorities and, in some cases, also contribute to them. Those priorities usually reflect public goods (or rather public services that can have a public good component, like schools, medical posts, markets, community centers) that do have externalities on other communities (or even within the community). Unfortunately, in development we tend to treat externalities either as a risk (other communities/actors reacting negatively, spoilers) or as a multiplier-effect (bonus points because there is a positive spill-over beyond the community) but rarely as something integral to the design of the decision-making process and the community contribution (both at initial stage and on running costs).

The study shows that enforcement of decisions is key (nothing new there) but also that voting and the nature of the externality have an effect on contributions: If negative it lowers (acknowledgement of impact on others?), if positive it also lowers!! (why should we pay for those free riders?) and if neutral increases (it is all ours?).

In my view policy implications are multiple: 

1) we need to field test this hypothesis, 

2) we may need to tailor decision-making processes and corresponding contributions according to externalities (assuming we want to maximize community contribution). Of course this is easier said that done, specially in CDD settings where the prioritization outcome is not necessarily known beforehand (although the guessing can be quite narrow),

3) extend voting to all contributors. While this point is not looked into by the study, the fact that there might be contributor not participating in the decision-making (indirectly so, through the non-binding phase), we can assume that shifting them from semi-bystanders to decision-makers/contributors would increase the compliance (a point made in many studies in political science on broadening the voting franchise AND the tax base),

4) in stable systems, both and positive negative externalities are dealt by shifting the decision-making process to a higher level (district, region, nation) that can provide for a compensatory system (insurance, investments, balancing out positive and negative externalities). However, in many development settings a 'bump-up the ladder' is not an efficient option (and a whole different 'governance' debate). Clustering (identifying and including affected parties) for decision-making and contributions (in the case of positive externalities) would make the public good neutral (and raise contributions). For negative externalities it is much harder unless the potential damage has been pre-identified and a compensatory mechanism already established (i.e. another development project in the affected community, mitigation measures).

Interesting links

Recent interesting articles:

- Mathematically defining Hipsters?

- How can Scandinavian countries tax so much? 

- Distance to the equator and economic development, explanation for the reversal of fortunes? 

- Compensating civilians during war, individual victims under International Law?

Stationary Bandits in Eastern Congo Working Paper

 This is a working paper I have been meaning to write for a while (it came out in November 2013) but until today haven't got around it. Shame on me because it is a very good paper!!  "On the Origin of States: Stationary Bandits and Taxation in Eastern Congo" by Raul Sanchez de la Sierra

"The state is among the greatest developments in human history and a precursor of economic growth. Why do states arise, and when do they fail to arise? A dominant view across disciplines is that states arise when violent actors impose a "monopoly of violence" in order to extract taxes. One key fact underlies all existing studies: no census exists prior to the state. In this paper, I provide the first econometric evidence on the determinants of state formation. As a foundation for this study, I conducted fieldwork in stateless areas of Eastern Congo, managing a team that collected village-level panel data on current armed groups. I develop a model that introduces optimal taxation theory to the decision of armed groups to form states, and argue that the returns to such decision hinge on their ability to tax the local population. A sharp, exogenous rise in the price of a bulky commodity used in the video-game industry, coltan, leads armed groups to impose a "monopoly of violence" in coltan villages. A later increase in the price of gold, easier to conceal and hence more difficult to tax, does not. Results based on two alternative identification strategies are also consistent with the model. The findings support the hypothesis that the expected revenue from taxation, in particular tax base elasticity, is a determinant of state formation."

 

I liked the paper so much that I even reached out to the author (and I don't ever write fan-mail) and asked about communities self-generating a competing 'monopoly of violence'!

 

State formation is a hot topic these days with all the talk of state-building (or the failure to achieve it) and fragile states. Access to resources, either directly or indirectly (through taxation, bribes, fees, shares, corvee or whatever term comes to mind) remains key for institutional (in a very loose sense) survival. Whether Stationary or Stationery (sorry, I had to do the pun... it is so apt!!) Bandits the important point is the ability to control the resource and not so much the actual value per unit. This connects with James C. Scot's argument (from his book The Art of Not Being Governed: An Anarchist History of Upland Southeast Asia)

on how people would deliberately and reactively remain stateless.The key strategy is to remain non-legible (difficult to assess and capture) therefore making state control of populations and resources impractical or extremely costly. 

 

Interestingly enough, so called conflict minerals (because the revenue generated fuel conflict) may be a source of stability in some situations, in comparison with 'standard banditry'.

Unfortunately, Development and Governance interventions in conflict/post-conflict/transition situations rarely take taxation (or other institutional revenue generation) and the subsequent dynamics between institutions and people as a foundation for 'state' presence and rather take a normative or rights based approach

Very interesting paper and clearly food for thought!

 

HT to Chris Blattman