Ryan Bubb - Research
In this paper we show how ownership of the firm by its customers, as well as nonprofit status, can be used to prevent the firm from exploiting consumer biases. By eliminating an outside residual claimant with control over the firm, these alternatives to investor ownership reduce the incentive of the firm to offer contractual terms that exploit the mistakes consumers make. We thus identify a governance strategy of shaping the incentives of firm management through assignment of ownership of the firm, rather than a regulatory strategy of dictating contractual terms or processes, as a way to reduce the social costs that result from consumer biases. We present evidence from the consumer financial services market that supports our theory. Comparing contract terms, we find that customer-owned firms offer lower penalties, such as default interest rates, and higher up-front prices, such as introductory interest rates, than do investor-owned firms.
This paper investigates the factors that have shaped the institutions governing property in land in West Africa. Using a regression discontinuity design, I estimate the effects of the divergent
de jure property law of Ghana and Cote d'Ivoire on
de facto property rights institutions. I find that households just on either side of the border between the two states report similar prevalence of rights to transfer their land. My findings provide evidence that formal law has played a limited role in property rights institutions and that instead non-state sources of norms shape the
de facto rules governing property in land. Furthermore, I show that part of the substantial within-country variation in property rights institutions is explained by economic factors, as hypothesized by Demsetz (1967). In particular, areas that are more suitable for growing cocoa have a greater prevalence of transfer rights, providing evidence that commercialization of agriculture has led to more individualized property rights institutions.
The aim of this paper is to model the evolution of international refugee law and to analyze reform proposals under which wealthy states would pay poorer states to host refugees. We show how the screening problem caused by economic migration has strengthened states' incentives to shade on their obligations under the 1951 Convention, resulting in more
refoulement of refugees to their place of persecution. A system that transfers refugee claimants from wealthy states to poorer states could mitigate the screening problem by inducing self-selection among refugee claimants. However, bilateral transfer agreements would create negative externalities for third countries by diverting refugees to them, and in general equilibrium, poorer countries would be made worse off. In contrast, reforms in which wealthy states paid to redistribute refugees among poorer states would create positive externalities for third countries by reducing their inward flows of refugees.
Credit score cutoff rules result in very similar potential borrowers being treated differently by mortgage lenders. Recent research has used variation induced by these rules to investigate the connection between securitization and lender moral hazard in the recent financial crisis. However, the conclusions of such research depend crucially on understanding the origin of these cutoff rules. We offer an equilibrium model in which cutoff rules are a rational response of lenders to per-applicant fixed costs in screening. We then demonstrate that our theory fits the data better than the main alternative theory already in the literature, which supposes cutoff rules are exogenously used by securitizers. Furthermore, we use our theory to interpret the cutoff rule evidence and conclude that mortgage securitizers were in fact aware of and attempted to mitigate the moral hazard problem posed by securitization.
For most of the period associated with the Industrial Revolution, English law restricted access to incorporation, and the Bubble Act explicitly outlawed the formation of unincorporated joint stock companies with transferable shares. Furthermore, firms in the manufacturing industries most closely associated with the Industrial Revolution were overwhelmingly partnerships. These two facts have led some scholars to posit that the antiquated business organization law was a constraint on the structural transformation and growth of the British economy during the period. The goal of this paper is to challenge this view and to point towards possible explanations for entrepreneurs' use of the partnership form. In short, the restrictions on access to the joint stock form lacked bite. Understanding that the joint stock form was an option leaves a puzzle: why were most firms in the modern sector partnerships? I propose a two-sided explanation: First, these firms had limited fixed capital needs, local sources of short-term credit, and high cost of accessing outside equity investment regardless of organizational form, suggesting that the advantages of the joint stock form were of little use. Second, the partnership form minimized agency costs, making it an attractive legal platform for manufacturing enterprises..
In standard political agency models, elections have socially beneficial incentive and screening effects. However, several recent papers have cast doubt on the ability of voters to play the role cast for them in public choice models. In this paper, I present evidence from India that voters are responsive to exogenous rainfall shocks, and argue that this is an important (and heretofore unexamined) feature of Indian politics. My estimates show that the effect of transitory rainfall on support for incumbents in post-monsoon elections is large and statistically significant. A one standard deviation increase in rainfall in the year before the election causes a 5.2 percentage point increase in an incumbent's vote margin. However, I show that in a rational political agency model based on that of Banks and Sundaram (1998), voter rationality alone does not rule out a correlation between observable exogenous economic shocks and support for the incumbent. My analysis clarifies the assumptions that are necessary for such a correlation to serve as evidence against voter rationality.
"BITs and Bargains: Strategic Aspects of Bilateral and Multilateral Regulation of Foreign Investment", 27 International Review of Law and Economics 291 (2007) (with Susan Rose-Ackerman).
Bilateral investment treaties (BITs) provide international standards for the protection of foreign investment. Andrew Guzman has argued that BITs represent a prisoner's dilemma for developing countries -- they would have been better off operating under customary international law. We formalize and critique Guzman's claim and demonstrate that a prisoner's dilemma is not necessary to explain the developing countries' behavior. Instead, the optimal strategy for newly independent states may have been to reap a windfall gain by a temporary period of expropriation and then to use BITs to commit to respecting property rights to new foreign investments. Finally, we argue that a multilateral agreement on investment (MAI) is now unlikely because the widespread coverage of BITs has narrowed the achievable surplus of an MAI.
A widespread phenomenon in developing countries is for applicants to face long delays, complex and poorly defined procedures, and burdensome and seemingly pointless requirements in order to acquire licenses and transfer payments from government agencies. Applicants commonly make payments of "speed money" to bureaucrats at the relevant public agencies to expedite their applications. The goal of this paper is to analyze endogenous red tape in order to understand better the relationship between red tape, bureaucratic corruption, and efficiency. By exploring the connections between the Coase-inspired literature on extortion and the problem of red tape and corruption, my analysis highlights the role of transaction costs in determining the allocative consequences of bureaucratic corruption.
© 2007 by the President and Fellows of Harvard College