Accountability and Information 1

Final Project Essentials: Fixed Effects

Author
Affiliation

Jeremy Springman

University of Pennsylvania

Logistics

Assignments

Agenda


  1. de la Sierra (2020)
  2. Final Project Essentials: Interaction terms and Fixed Effects
  3. Data Assignment 1

de la Sierra (2020)

Background


What is political accountability?

  • Answerability
  • Enforceability

Background


What is a state?

  • An entity with a monopoly on the legitimate use of physial violence
  • Capacity to act as the sole arbiter and enforcer of law and order

Background


What are a state’s essential functions?

  1. War making: eliminating external rivals
  2. State making: Eliminating internal rivals
  3. Protection: Protecting clients
  4. Extraction: Acquiring resources

Background

State formation

  • States have their origins as armed actors
  • The most successful armed actors became states
  • Where armed actors establish states depends on their ability to tax
  • Taxation induces proto-accountability: more wealthy people means more tax revenue
  • States lead to the emergence of growth

What is the distinction between roving and stationary bandits?

Background

The resource curse

  • Abundant natural resources are associated with lower growth, more conflict, and worse human outcomes?
  • Why might abundant natural resources reduce political accountability?

Theory

Observability and incentives

  • Taxation requires providing protection and establishing a monopoly of violence
  • If production can be observed, a higher value of output increase returns to taxing production where output is produced (direct)
  • If production can’t be easily observed, a higher value of output increases returns to taxing production through people and consumption (indirect)
  • Taxing people requires more sophisticated administration (capacity) and

Data

Sample

  • Panel data on village histories (1995-2013)
  • 650 locations

Outcomes

  • State formation: Stationary bandit, output taxation, sophisticated taxation, security services, fiscal and judicial administration
  • Population welfare: Savings, weddings, migrants

Research Design

  • Demand shocks for two resources
    • Coltan is observable
    • Gold is not observable
  • Exogenous timing of mineral price changes

Findings

Findings

Findings

  • Coltan prices:
    • Increase stationary bandits, security at mines (not villages), simple taxation, and welfare (militia only)
    • Decrease fiscal and judicial administration
  • Gold prices:
    • Increase stationary bandits, security at villages (not mines), sophisticated taxation, fiscal and judicial administration, and welfare (army or militia)
  • Stationary bandits increase HH welfare if the value of the protection they provide outweighs the distortionary effect of their taxation

Policy Implications

Jablonski and Seim (2023)

Final Project Essentials

Interaction Terms

What is an interaction term?

  • Simple linear models assume that the effect of predictors is independent of other factors
  • Interaction terms allow us to estimate the difference in the slope of a predictor across unit characteristics

What are they used for?

  • Heterogeneous effects
  • Difference-in-differences

Interaction Terms

How do they do work?

\[ Y_i = \alpha + \beta_1 X_{i1} + \beta_2 X_{i2} + \beta_3 (X_{i1}*X_{i2}) + \epsilon_i \]

Example: Continuous outcome with two binary predictors

  • \(\alpha\): Intercept when \(X_{i1}\) and \(X_{i2}\) are 0
  • \(\beta_1\) Slope when \(X_{i2} = 0\)
  • \(\beta_2\) Difference in \(\alpha\) between \(X_{i2}=0\) and \(X_{i2}=1\)
  • \(\beta_3\) Difference in \(\beta_1\) between \(X_{i2}=0\) and \(X_{i2}=1\)