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Credible Commitments and Investment: Does Opportunistic Ability or Incentive Matter?

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  • Dino Falaschetti

Abstract

Private investment increases in a cross-country panel when formal institutions (e.g., term limits) do not constrain executives' planning horizons. This evidence is consistent with institutions that encourage reputation-building checking opportunistic incentives and extends evidence from domestic public choice applications to an international political economy setting. In addition, investment exhibits a nonmonotonic relationship with a polity's veto players. This relationship may reflect trade-offs between constituents' monitoring-capacity and agents' opportunistic ability. It may also highlight a channel through which lock-in effects retard neoclassical convergence and thus motivate different normative prescriptions than those emerging from contributions where institutions and real activity must exhibit a monotonic relationship. (JEL D72, D78, E61) Copyright 2003, Oxford University Press.

Suggested Citation

  • Dino Falaschetti, 2003. "Credible Commitments and Investment: Does Opportunistic Ability or Incentive Matter?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 660-674, October.
    • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:4:p:660-674
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    File URL: http://hdl.handle.net/10.1093/ei/cbg035
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    Citations

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    Cited by:

    1. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, University Library of Munich, Germany.
    2. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
    3. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, University Library of Munich, Germany.
    4. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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