Periodic Reporting for period 4 - POLBUSNETWORKS (Political and Business Networks)
Berichtszeitraum: 2021-11-01 bis 2023-04-30
This project studies the role of networks involving firms---networks between firms and politicians, and networks between firms and firms--for economic outcomes.
I focus on two broad questions.
(1) What are the determinants and mechanisms of political favor networks?
(2) What is the impact of business networks on firm and industry performance?
The answers can help us understand economic and political differences between firms, industries and countries. In exploring these issues I develop new theories which I then test with new observational and experimental data. Beyond documenting and explaining facts, I also hope to obtain policy implications on protecting political freedoms and improving industry performance in developing countries.
I focus on two broad questions.
(1) What are the determinants and mechanisms of political favor networks?
(2) What is the impact of business networks on firm and industry performance?
The answers can help us understand economic and political differences between firms, industries and countries. In exploring these issues I develop new theories which I then test with new observational and experimental data. Beyond documenting and explaining facts, I also hope to obtain policy implications on protecting political freedoms and improving industry performance in developing countries.
In the context of political networks, we investigated the relationship between the government and the media. First, we documented two-way favors between these actors: advertising favors from the government to connected media, and content favors from connected media to the government. Estimating a model to match these data, we found that much of the observed patterns were driven by favor exchange. Then, we turned to media and political content. We developed a theory in which politicians supply coherent but false alternative realities, featuring elite conspiracies, which enable them to discredit the news media and deflect criticism. We developed implications of this framework, including predictions about socially harmful government policy (e.g. anti-vaccine) and the emergence of conspiracy-spreading media outlets. Taken together, our analysis identifies important barriers to democratic accountability, and suggests policies that help protect press freedom and reinstate accountability.
In the context of business networks, in a set of studies we have documented the large effects of business networks on firm and industry performance. In one study we showed that business associations substantially improve the performance of participating firms. In another study we showed that firm-to-firm referrals create new supplier-client relationships, lead to a rewiring of the transaction network, and generate firm growth. These results identify a new growth barrier based on firm-to-firm search frictions. Turning to industry-level outcomes, in a third study we documented that access to finance had large positive direct effects on firms, but similarly large negative indirect effects on their competitors due to business-stealing. However, access to finance was still socially beneficial due to positive effects on the firms’ consumers. Taken together, our results demonstrate the importance of accounting for network effects in evaluating industrial policies, and identify concrete policies that improve business and industry performance by leveraging these network effects.
In the context of business networks, in a set of studies we have documented the large effects of business networks on firm and industry performance. In one study we showed that business associations substantially improve the performance of participating firms. In another study we showed that firm-to-firm referrals create new supplier-client relationships, lead to a rewiring of the transaction network, and generate firm growth. These results identify a new growth barrier based on firm-to-firm search frictions. Turning to industry-level outcomes, in a third study we documented that access to finance had large positive direct effects on firms, but similarly large negative indirect effects on their competitors due to business-stealing. However, access to finance was still socially beneficial due to positive effects on the firms’ consumers. Taken together, our results demonstrate the importance of accounting for network effects in evaluating industrial policies, and identify concrete policies that improve business and industry performance by leveraging these network effects.
In the context of political networks, we further develop the work on media capture by investigating how and why capture generates votes. We first explore how media capture also involves the capture of state-owned firms and media agencies, resulting in control over the entire path of advertising. We then study media content, focusing on how captured media cover the immigration crisis. Finally, we explore the effect of capture on votes. The results are expected to help quantify the economic mechanisms and political implications of media capture.
In the context of business networks, we are investigating the impact of suppliers on firm and industry performance. In one study we introduce randomly selected supplier and client firms to an online ecommerce platform, and evaluate the impact of the platform on firm performance and firm-to-firm trade. In a second study we use comprehensive data on firm-to-firm transactions in Hungary to evaluate the impact of supply chain misallocation on industry and aggregate performance. The results are expected to help quantify the economic importance of supply chains, and identify policies that improve firm-to-firm transactions.
In the context of business networks, we are investigating the impact of suppliers on firm and industry performance. In one study we introduce randomly selected supplier and client firms to an online ecommerce platform, and evaluate the impact of the platform on firm performance and firm-to-firm trade. In a second study we use comprehensive data on firm-to-firm transactions in Hungary to evaluate the impact of supply chain misallocation on industry and aggregate performance. The results are expected to help quantify the economic importance of supply chains, and identify policies that improve firm-to-firm transactions.