Centralized institutions and cascades

Rubin, Jared (2011): Centralized institutions and cascades.

Abstract

Why do sudden and massive social, economic, and political changes occur when and where they do? Are there institutional preconditions that encourage such changes when present and discourage such changes when absent? I employ a general model which suggests that cascades which induce massive equilibrium changes are more likely to occur in regimes with centralized coercive power, defined as the ability to impose more than one type of sanction (economic, legal, political, social, or religious). Centralized authorities are better able to suppress subversive actions when external shocks are small, as citizens have little incentive to incur numerous types of sanctions. However, citizens are also more likely to lie about their internal preferences in such regimes (e.g., falsely declare loyalty to an oppressive government), entailing that large shocks are more likely to trigger a cascade when authority is centralized. The model is applied to the severity of protests that followed austerity measures taken in developing nations since the 1970s.

• Item Type: MPRA Paper
• Language: English
• Keywords: Institutions; centralization; cascades; austerity; protests; revolution; preference falsification
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice ; Clubs ; Committees ; Associations; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z10 - General; K - Law and Economics > K1 - Basic Areas of Law > K19 - Other; H - Public Economics > H8 - Miscellaneous Issues > H89 - Other

References

Akerlof, George A. 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence." Quarterly Journal of Economics 94(4): 749-775.

Akerlof, George A. 1997. "Social Distance and Social Decisions." Econometrica 65(5): 1005-1027.

Akerlof, George A., and Rachel E. Kranton. 2000. "Economics and Identity." Quarterly Journal of Economics 115(3): 715-753.

Akerlof, George A., and Rachel E. Kranton. 2005. "Identity and the Economics of Organizations." Journal of Economic Perspectives 19(1): 9-32.

Alevy, Jonathan E., Michael S. Haigh, and John A. List. 2007. "Information Cascades: Evidence from a Field Experiment with Financial Market Professionals." Journal of Finance 62(1): 151-180.

Anderson, Lisa R., and Charles A. Holt. 1997. "Information Cascades in the Laboratory." American Economic Review 87(5): 847-862.

Auvinen, Juha. 1997. "Political Conflict in Less Developed Countries, 1981-89." Journal of Peach Research 34(2): 177-195.

Banerjee, Abhijit V. 1992. "A Simple Model of Herd Behavior." Quarterly Journal of Economics 107(3): 797-817.

Banerjee, Abhijit V. 1993. "The Economics of Rumours." Review of Economic Studies 60(2): 309-327.

Barrett, D.B., G.T. Kurian, and T.M. Johnson 2001. World Christian Encyclopedia, 2nd ed. Oxford: Oxford University Press.

Bernheim, B. Douglas. 1994. "A Theory of Conformity." Journal of Political Economy 102(5): 841-877.

Besley, Timothy and Stephen Coate. 2003. "Centralized versus decentralized provision of local public goods: a political economy approach." Journal of Public Economics 87: 2611-2637.

Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change as Information Cascades." Journal of Political Economy 100(5): 992-1026.

Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades." Journal of Economic Perspectives 12(3): 151-170.

Bueno de Mesquita, Bruce. 2009. The Predictioneer's Game: Using the Logic of Brazen Self-Interest to See & Shape the Future. New York: Random House.

Callander, Steven. 2007. "Bandwagons and Momentum in Sequential Voting." Review of Economic Studies 74(3): 653-684.

Çelen, Boğaçhan, and Shachar Kariv. 2004. "Distinguishing Informational Cascades from Herd Behavior in the Laboratory." American Economic Review 94(3): 484-498.

Davies, James C. 1962. "Toward a Theory of Revolution." American Sociological Review 27(1): 5-19.

Dillon, K. Burke, C. Maxwell Watson, G. Russell Kincaid, and Chanpen Puckahtikom. 1985. Recent Developments in External Debt Restructuring. Washington: IMF.

Ellis, Christopher J. and John Fender. 2011. "Information Cascades and Revolutionary Regime Transitions." Economic Journal 121(553): 763-792.

Faguet, Jean-Paul. 2004. "Does decentralization increase government responsiveness to local needs?: Evidence from Bolivia." Journal of Public Economics 88(3-4): 867-893.

Fershtman, Chaim, Kevin M. Murphy, and Yoram Weiss. 1996. "Social Status, Education, and Growth." Journal of Political Economy 104(1): 108-132.

Fershtman, Chaim, and Yoram Weiss. 1993. "Social Status, Culture and Economic Performance." Economic Journal 103: 946-959.

Freedom House. 2009. Freedom in the World. Washington: Freedom House.

Gintis, Herbert. 2003. "Solving the Puzzle of Prosociality." Rationality and Society 15(2): 155-187.

Goeree, Jacob K., Thomas R. Palfrey, Brian W. Rogers, Richard D. McKelvey. 2007. "Self-Correcting Information Cascades." Review of Economic Studies 74(3): 733-762.

Goldstone, Jack A. 1994. "Is Revolution Individually Rational?" Rationality and Society 6(1): 139-166.

Goldstone, Jack A. 2001. "Toward a Fourth Generation of Revolutionary Theory." Annual Review of Political Science 4: 139-187.

Gould, Roger V. 1993. "Collective Action and Network Structure." American Sociological Review 58(2): 182-196.

Granovetter, Mark. 1978. "Threshold Models of Collective Behavior." American Journal of Sociology 83(6): 1420-1443.

Greif, Avner. 2005. "Commitment, Coercion, and Markets: The Nature and Dynamics of Institutions Supporting Exchange", in (C. Menard and M.M. Shirley, eds.), Handbook for New Institutional Economics, Norwell, MA: Kluwer Academic Publishers.

Greif, Avner. 2006. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Cambridge: Cambridge University Press.

Greif, Avner. 2009. "Morality and Institutions." Mimeo, Stanford University.

Greif, Avner, and Steven Tadelis. 2010. "A Theory of Moral Persistence: Crypto-morality and Political Legitimacy." Journal of Comparative Economics: 38(3): 229-244.

Iannaccone, Laurence R. 1988. "A Formal Model of Church and Sect." American Journal of Sociology 94(Supplement): S241-S268.

International Monetary Fund. (Various). Annual Report. Washington: IMF.

Iyigun, Murat. 2009. "Monotheism (From a Sociopolitical & Economic Perspective)." Working Paper.

Karaman, Kamil Kivanç. 2009. "Decentralized coercion and self-restraint in provincial taxation: The Ottoman Empire, 15th--16th centuries." Journal of Economic Behavior & Organization 71(3): 690-703.

Kim, Hyojoung and Peter S. Bearman. 1997. "The Structure and Dynamics of Movement Participation." American Sociological Review 62(1): 70-93.

Klein, Naomi. 2007. Shock Doctrine: The Rise of Disaster Capitalism. New York: Holt and Company.

Kübler, Dorothea and Georg Weizsäcker. 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory." Review of Economic Studies 71(2): 425-441.

Kübler, Dorothea and Georg Weizsäcker. 2005. "Are Longer Cascades More Stable?" Journal of the European Economic Association 3(2/3): 330-339.

Kuhn, Michael G., and Jorge P. Guzmàn. 1990. Multilateral Official Debt Rescheduling: Recent Experience. Washington: IMF.

Kuran, Timur. 1987. "Preference Falsification, Policy Continuity and Collective Conservatism." Economic Journal 97: 642-665.

Kuran, Timur. 1989. "Sparks and prairie fires: A theory of unanticipated political revolution." Public Choice 61: 41-71.

Kuran, Timur. 1991. "Now Out of Never: The Element of Surprise in the East European Revolution of 1989." World Politics 44(1): 7-48.

Kuran, Timur. 1995a. Private Truths, Public Lies: The Social Consequences of Preference Falsification. Cambridge: Harvard University Press.

Kuran, Timur. 1995b. "The Inevitability of Future Revolutionary Surprises." American Journal of Sociology 100(6): 1528-1551.

Kuran, Timur. 1998. "Ethnic Norms and Their Transformation through Reputational Cascades." Journal of Legal Studies 27(2): 623-659.

Kuran, Timur. 2005. "The Absence of the Corporation in Islamic Law: Origins and Persistence." The American Journal of Comparative Law 53: 785-834.

Kuran, Timur, and William H. Sandholm. 2008. "Cultural Integration and Its Discontents." Review of Economic Studies 75: 201-228.

Kuran, Timur, and Cass R. Sunstein. 1999. "Availability Cascades and Risk Regulations." Stanford Law Review 51(4): 683-768.

Lockwood, Ben. 2002. "Distributive Politics and the Costs of Centralization." Review of Economic Studies 69: 313-337.

Lohmann, Susanne. 1994. "The Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989-91." World Politics 47(1): 42-101.

Macy, Michael W. 1991. "Chains of Cooperation: Threshold Effects in Collective Action." American Sociological Review 56(6): 730-747.

Manor, James. 1999. The political economy of democratic decentralization. Washington DC: World Bank.

Marshall, Monty G. and Keith Jaggers. 2008. Polity IV project: Political regime characteristics and transitions, 1800-2008.

Marwell, Gerald, Pamela E. Oliver, and Ralph Prahl. 1988. "Social Networks and Collective Action: A Theory of the Critical Mass. III." American Journal of Sociology 94: 502-534.

Meng, Xin, Nancy Qian, and Pierre Yared. 2010. "The Institutional Causes of China's Great Famine, 1959-61." NBER Working Paper 16361.

Naylor, Robin. 1990. "A Social Custom Model of Political Action." European Journal of Political Economy 6(2): 201-216.

Oliver, Pamela E. 1993. "Formal Models of Collective Action." Annual Review of Sociology 19: 271-300.

Oliver, Pamela E. and Gerald Marwell. 1988. "The Paradox of Group Size in Collective Action: A Theory of the Critical Mass. II." American Sociological Review 53: 1-8.

Oliver, Pamela E., Gerald Marwell, and Ruy Tiexeira. 1985. "A Theory of the Critical Mass. I. Interdependence, Group Heterogeneity, and the Production of Collective Action." American Journal of Sociology 91(3): 522-556.

Olson, Mancur. 1963. "Rapid Growth as a Destabilizing Force." Journal of Economic History 23(4): 529-552.

Olson, Mancur. 1971. The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge: Harvard University Press.

Rasler, Karen. 1996. "Concessions, Repression, and Political Protest in the Iranian Revolution." American Sociological Review 61(1): 132-152.

Romer, David. 1984. "The Theory of Social Custom: A Modification and Some Extensions." Quarterly Journal of Economics 99(4): 717-727.

Rondinelli, Dennis. 1981. "Government Decentralization in Comparative Perspective: Theory and Practice in Developing Countries." International Review of Administrative Science 47(2).

Rubin, Jared. 2011. "Institutions, the Rise of Commerce, and the Persistence of Laws: Interest Restrictions in Islam & Christianity." Economic Journal, forthcoming.

Siegel, David A. 2009. "Social Networks and Collective Action." American Journal of Political Science 53(1): 122-138.

Shugart, Matthew Soberg. 1989. "Patterns of revolution." Theory and Society 18: 249-271.

Slater, Dan. 2009. "Revolutions, Crackdowns, and Quiescence: Communal Elites and Democratic Mobilization in Southeast Asia." American Journal of Sociology 115(1): 203-254.

Tanter, Raymond, and Manus Midlarsky. 1967. "A theory of revolution." Journal of Conflict Resolution 11(3): 264-280.

Tullock, Gordon. 1971. "The Paradox of Revolution." Public Choice 1: 89-99.

Walton, John and Charles Ragin 1990. "Global and National Sources of Political Protest: Third World Responses to Debt Crisis." American Sociological Review 55(6): 876-890.

Walton, John and David Seddon. 1994. Free Markets & Food Riots. Cambridge, MA: Blackwell.

Watts, Duncan J. and Peter Sheridan Dodds. 2007. "Influentials, Networks, and Public Opinion Formation." Journal of Consumer Research 34(4): 441-458.

World Bank. (Various). World Development Indicators. Washington: World Bank.

World Bank. (Various). World Tables. Baltimore: Johns Hopkins University Press.

Yin, Chien-Chung. 1998. "Equilibria of Collective Action in Different Distributions of Protest Thresholds." Public Choice 97: 535-567.