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

Dino Falaschetti

Economic Inquiry, 2003, vol. 41, issue 4, 660-674

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.

JEL-codes: D72 D78 E61 (search for similar items in EconPapers)
Date: 2003
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