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

  • Dino Falaschetti
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    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.

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    File URL: http://hdl.handle.net/10.1093/ei/cbg035
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    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 41 (2003)
    Issue (Month): 4 (October)
    Pages: 660-674

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    Handle: RePEc:oup:ecinqu:v:41:y:2003:i:4:p:660-674
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