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Citizens, Institutions and Globalization

Periodic Reporting for period 3 - CITIZINGLOBAL (Citizens, Institutions and Globalization)

Reporting period: 2020-01-01 to 2021-06-30

Globalization has brought the world economy unprecedented prosperity. However, it has also created governance challenges, engendered popular discontent, and placed a strain on political systems. To reap the full gains from global economic integration, governments need to provide the appropriate infrastructure, institutions and policies. Those policies, however, can have controversial distributional consequences. Moreover, they may be incompletely or imperfectly understood by majorities of voters, calling into question their democratic legitimacy.

The goal of this project is to improve our understanding of the interplay between citizens’ information, political institutions and economic globalization. In particular, it studies when trade- and productivity-enhancing policies enjoy democratic support; why voters may support instead inefficient surplus-reducing policies; and how political structure reacts to globalization.

The project is organized around two main themes. The first is the crucial role of voter knowledge in a well-functioning democracy. When citizens are well-informed about political decisions and their economic consequences, politicians and bureaucrats are held accountable and government activity reflects the broad interests of society. Instead, when citizens are uninformed, political decisions are prone to corruption and capture by special interest with superior knowledge and influence. When citizens are misinformed, they may even misguidedly support policies that end up harming them.

The second overall theme of the project is the interplay of economic geography and political structure. This project studies, on the one hand, how politics respond to geography, through the spatial organization of government and the creation of overlapping jurisdictions and federal structures. On the other hand, it investigates how politics shape geography, improving or worsening the allocation of resources across space through such levers as trade policy, transportation infrastructure, or legal and regulatory mechanisms to enforce contracts and property rights.
Up to date, the results achieved by the project include a published article and two completed working papers. The former presents a theoretical model of the political processes that underpin infrastructure investment. The model explains the observed pattern of infrastructure development in developed countries as the outcome of a tug-of-war between central-city residents suffering the nuisance costs of infrastructure, suburbanites enjoying the benefits of shorter commutes, and uninformed taxpayers funding national infrastructure subsidies. As urban incomes rise and community organization improves, the model accounts for the observed shift from over-building and neglect of neighborhood disruption to under-building and over-expenditure on mitigation.

The second paper develops a theoretical framework to understand the long-run evolution of political geography in response to expanding trade opportunities. As technological progress increases the scope for long-distance trade, trade-hindering borders become costlier. At first, the optimal political response is to eliminate borders by expanding country size. Powerful countries grow through aggression, by engaging in imperialist expansion. In a second wave of globalization, however, it becomes optimal to eliminate the cost of borders by creating international unions. Countries become smaller, and peaceful supranational organizations like the European Union replace warmongering colonial empires.

The third paper studies the political consequences of one of the best known biases identified by social psychology: the Fundamental Attribution Error, namely our human tendency to incorrectly attribute observed behavior to the immutable traits of agents, rather than to the variable characteristics of their environment. When voters fall victim to this natural mistake, they misunderstand the true effects of different policies and may thus prefer less effective policies to more successful ones. Most ominously, the model explains popular support for a slide into dictatorship. When voters observe successful leaders, they misattribute success to inalterable personal characteristics such as skill and rectitude. This leads them to support moves to reward success with unchecked power, whereas in reality that very success was rooted in the incentives provided by democratic checks and balances.
The rest of the project will keep developing the two working papers presented above and at least three others.

First, a study of voter information, media scrutiny, and the politics of inefficient trade barriers. Although protectionism is an inefficient mechanism to redistribute from the many to the few, the project will show it can reap electoral gains when the few insiders reaping the gains are well-informed, while the many consumers and taxpayers shouldering the losses are unaware of their extent. This implies that policy distortions will decline if greater media scrutiny improves public knowledge of policy interventions in a given sector.

Second, an analysis of different enforcement strategies to protect property rights and thereby promote economic development. A traditional view is that efficiency is maximized by a liability regime that assigns fair compensation for damages. This is true if public knowledge of the relevant facts makes legal enforcement highly accountable. However, when economic realities are complex and institutional quality weak, such a system is prone to subversion. To protect the weaker members of society from predation by the powerful, simpler rules are required. This framework can shed light on observed disparities in the quality of legal enforcement across space.

Third, a model of international unions as a way of fostering economic integration by removing non-tariff barriers. The analysis will study the distributional consequences of economic unions across member states and across industries within each country, and explore how these patterns can explain popular support for, and opposition to, supranational institutions like the European Union and their policies.