Publications

We argue that sustainable balanced development is preconditioned on financial inclusion, and that FinTech is the key driver for financial inclusion. In turn, the full potential of FinTech to support the Sustainable Development Goals will only be realized with a progressive approach to developing infrastructure to support digital financial transformation.

Our research suggests the best way to think about such a strategy is to focus on four primary pillars. The first pillar requires the building of digital identity and simplified account opening and e-KYC systems. This is supported by the second pillar of open interoperable electronic payments systems. The third pillar involves using the infrastructure of the first and second to underpin electronic provision of government services and payments. The fourth pillar – digital financial markets and systems – supports broader access to finance and investment. Implementing the four pillars is a major journey, but one with tremendous potential to transform financial inclusion and sustainable growth.

This paper opens the ‘black box’of political legitimacy and asks what role, if any, it played in the transformation of pre-modern England’s political system to one based on representation and the rule of law. Accordingly, the paper …rst presents a theory of endogenous legitimacy and why it in‡uences the distribution of political power and thus policies, institutions, and outcomes. Applying this framework to England’s political history highlights the importance of the Reformation, following which the Catholic Church lost its legitimizing role. The Crown’s increasing reliance on Parliament and the laws it produced for legitimation changed the balance of political power in favor of Parliament. Legitimacy was thus central to the 17th-century Civil War and the Glorious Revolution, as the Stuart monarchs attempted to undermine the legitimizing role –and hence power –of Parliament. The analysis lends support to the view that institutions and culture are inter-related.

Employing a wide range of individual-level surveys, we study the extent of cultural and
institutional heterogeneity within the EU and how this changed between 1980 and 2008. We present several novel empirical regularities that paint a complex picture. While Europe has experienced both systematic economic convergence and an increased coordination across national and subnational business cycles since 1980, this was not accompanied by cultural nor institutional convergence. Such persistent heterogeneity does not necessarily spell doom for further political integration, however. Compared to observed heterogeneity within member states themselves, or in well functioning federations such as the US, cultural diversity across EU members is a similar order of magnitude. The main stumbling block on the road to further political integration is not heterogeneity of tastes or of cultural traits, but other cleavages, such as national identities.

What are the origins of political fragmentation in Europe and political unification
in China? This study develops a Malthusian growth model with multiple states to
explore interstate competition and the endogenous evolution of human society from
political fragmentation to a unified empire. Our model features an agricultural society
with citizens and rulers in a Malthusian environment in which the expansion of one
state may come at the expense of another state, depending on the elasticity of the land
ratio with respect to the ratio of population between states. If this elasticity is less
than unity, then multiple states coexist (i.e., political fragmentation) in the long run.
However, if this elasticity is equal to unity, then only one state (i.e., political unification)
will survive in the long run. Which state becomes the unified empire depends on the state's military power, agricultural productivity, and its rulersí preference for rent-seeking Leviathan taxation. We also discuss the historical relevance of these theoretical predictions.

The standard approach in positive political theory posits that action choices are the consequences of attitudes. Could it be, however, that an individual’s actions also affect her fundamental preferences? We present a broad theoretical framework that captures the simple, yet powerful, intuition that actions frequently alter attitudes as individuals seek to minimize cognitive dissonance. This framework is particularly appropriate for the study of political attitudes and enables political scientists to formally address questions that have remained inadequately answered by conventional rational choice approaches – questions such as “What are the origins of partisanship?” and “What drives ethnic and racial hatred?” We illustrate our ideas with three examples from the literature: (1) how partisanship emerges naturally in a two party system despite policy being multi-dimensional, (2) how ethnic or racial hostility increases after acts of violence, and (3) how interactions with people who express different views can lead to empathetic changes in political positions. 

In developing countries with weak institutions, there is implicitly a large reliance on elections to instill norms of accountability and reduce corruption. In this paper we show that electoral discipline may be ineffective in reducing corruption when political competition is too high or too low. We first build a simple game theoretic model to capture the effect of electoral competition on corruption. We show that in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. We also predict that when there are different types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition. We test the model’s predictions using data gathered on audit findings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. Our results largely confirm the theoretical results that competition has a non-linear effect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, our results suggest that over-reliance on elections to discipline politicians is misplaced.

In this paper we trace the evolution of the lender of last resort doctrine—and its implementation—from the nineteenth century through the panic of 2008. We find that typically the most influential economists “fight the last war”: formulating policy guidelines that would have dealt effectively with the last crisis or in some cases the last two or three. This applies even to the still supreme voice among lender-of-last-resort theorists, Walter Bagehot, who wrestled with the how to deal with the financial crises that hit Britain between the end of the Napoleonic Wars and the panic of 1866. Fighting the last war may leave economists unprepared for meeting effectively the challenge of the next war.