T in an Indian City 6 Erica Field, Matthew Levinson, Rohini Pande and Sujata Visaria

T RESEA R CH REVIEW Contents Spring 2008 Recent Discussion Papers Page #168 Who Is Punishing Corrupt Politicians – Voters or the Central Government? Evidence from the Brazilian Anti-Corruption Program 2 Fernanda Brollo #169 Forests to the People: Decentralization and Forest EVELOPMEN Degradation in the Indian Himalayas 2 Jean-Marie Baland, Pranab Bardhan, Sanghamitra Das and Dilip Mookherjee D #170 A Dynamic Incentive-Based Argument for Conditional Transfers 3 C Dilip Mookherjee and Debraj Ray I #171 Political Participation, Clientelism and Targeting of Local Government Programs: Analysis of Survey Results from Rural West Bengal, India 3 Pranab Bardhan, Sandip Mitra, Dilip Mookherjee and Abhirup Sarkar #172 Trade Liberalization and Organizational Choice 4 Paola Conconi, Patrick Legros and Andrew F. Newman CONOM #173 Competitive Prices and Organizational Choices 5 E Patrick Legros and Andrew F. Newman #174 Segregation, Rent Control, and Riots: The Economics of Religious Conflict in an Indian City 6 Erica Field, Matthew Levinson, Rohini Pande and Sujata Visaria FOR #175 Political Reservations and Rural Public Good Provision in India 6 Nandini Krishnan E #176 Pro-Poor Targeting and Participatory Governance: T Evidence from Central India 7 U Neha Kumar Faculty Research in Progress 8 tit Student Achievements 10 NS New Initiatives 10 I Visiting Scholars 11 HE T The Institute for Economic Development (IED) is a research center within Boston University’s Department of Economics focusing on the economic problems of developing countries. The Institute for Economic Development at Boston University WHO IS PUNISHING CO rr U P T POLITICIANS – of federal transfers to municipal administrations with corruption VOTE R S OR THE CENT R AL GOVE R NMENT ? violations reported in the audit reports has a relevant impact on the incumbent’s probability of re-election, when this reduction EVIDENCE FR OM THE BR AZILIAN can be perceived by voters before the municipal elections. NTI O rr U P TION R OG R AM A -C P However, incumbency advantages might help corrupt re-elected Fernanda Brollo mayors in getting out of the punishment phase. The author finds Discussion Paper 168 that the central government keeps punishing municipalities Corruption at the local level poses an important obstacle to with many violations reported even when a new mayor is economic development. Acknowledging this, governments in elected. This unnecessary punishment may have undesired a growing number of developing countries have implemented social welfare implications, especially when corruption at the anti-corruption programs that aim to increase political local level is associated with poorer areas. Moreover, it could accountability and improve public-sector management at the create an incentive to voters to re-elect corrupt incumbent local level. When corruption at the local level can be detected mayors in future elections. by the central government and is revealed to voters, the incumbent mayors’ probability of re-election should decrease if the corruption revealed is greater than voters’ prior beliefs. FO R ESTS TO THE PEO P LE : DECENT R ALIZATION However, in developing countries, local accountability could AND FO R EST DEG R ADATION IN THE INDIAN be hampered by high illiteracy rates; therefore, dissemination HIMALAYAS of corruption information may have little effect on election Jean-Marie Baland, Pranab Bardhan, Sanghamitra Das outcomes for corrupt incumbents. Also, when compensated and Dilip Mookherjee with an adequate level of public goods or service delivery, Discussion Paper 169 voters may turn a blind eye to corruption. On the other hand, Management of common property resources such as forests, it is plausible that a national government, in promoting an anti- fisheries and irrigation systems has become a central issue in corruption program, will reduce federal resources transferred development economics and policy. This owes both to the to those local administrations that are found to be corrupt. high degree of reliance of the poor in rural communities in de- This paper investigates the channels through which the veloping countries on these resources, as well as concerns for Brazilian anti-corruption program acts, i.e. dissemination of environmental sustainability. While there are many plausible corruption information among voters or reduction of federal causes of degradation of these resources such as population resources transferred to more corrupt local administrations. pressure, economic growth, and commercial exploitation, an Analyses show that the central government reduced the amount important determinant is the nature of property rights and con- of transfers after the release of audit reports to more corrupt trol mechanisms. It is frequently argued that excessive state municipalities. Municipalities with many corruption violations control and management of such resources have contributed to reported are associated with lower per-capita income levels, degradation of common property resources. This suggests the lower literacy rates, and a higher percentage of people living in need for policies that allow local communities to manage these rural areas. Thus, the analysis of the mechanisms on which this resources themselves. anti-corruption program acts is crucial. If local accountability To test this theory, the authors compare the effectiveness of is effective, i.e. if voters are punishing corrupt politicians at the Van Panchayats (VPs) – community forest councils – versus ballots because of the dissemination of corruption information, the state forest department on maintaining forest conditions in the decrease in the amount of infrastructure transfers to more Utttaranchal, India. They use a unique dataset which expands corrupt municipalities might not be necessary and may actually on the range of dimensions of forest quality measures used in hurt poor communities. existing studies. First, the dataset includes detailed ground- The exogenous timing of the release of the audit reports level measures of forest quality conducted by trained ecolo- paired with the timing of federal transfers and its institutional gists, in contrast to perception-based measurements by local scheme makes it possible to disentangle these channels. There community members or aerial satellite images. Ground-level is evidence that the effect of the dissemination of corruption measurements allow the authors to have five different measures information fades with time. On the other hand, the reduction of forest quality: canopy cover, height, girth and species of trees, 2 Research Review 2008 lopping and regeneration rates. Second, the forest surveys are with imperfect credit markets. In this setting, parents must pay complemented by household surveys and in-depth interviews for their children’s education by sacrificing current consump- with the local population regarding firewood and fodder col- tion. The long run purpose of an anti-poverty scheme can then lection. For example, local residents were asked the collection be described as the promotion of incentives for the current poor time per bundle of firewood; higher responses would imply and their descendants to acquire skills that will enable them to more severe forest degradation. escape poverty in the long run. Since more degraded forests have higher chances of being The authors start by analyzing a simple setting in which there converted to VP forests, looking at raw differences between are only two occupations – skilled and unskilled. No education degradation levels of VP and non-VP forests would understate is required to enter the unskilled occupation, whereas educa- the benefits of VP management. The authors thus control for for- tion is required for the skilled occupation. Education costs est geography, intrinsic village characteristics, and cross-forest are exogenous and equal for all. The skill premium in wages spillovers in their empirical analysis. Doing so, they find that depends on the proportion of households that are skilled. The an average tree in VP forests is approximately 20 percent less authors then compare the long-run effects of unconditional and lopped compared to state managed forests. Further, the lopping conditional transfers, funded by taxes collected from skilled differences are greater the longer the forest has been under VP households. They find that unconditional transfers tend to reduce management. They also find that proximity to VP forests is as- investment in human capital, per capita output and consumption sociated with significantly lower use of firewood. Their results in the long run, while conditional transfers lead to opposite re- are consistent with the hypothesis that more degraded forests are sults. This is because unconditional transfers create a ‘welfare more likely to be converted to VP forests, and VP management magnet’ effect that reduces incentives to citizens to engage in subsequently improves forest quality, bringing them back on costly investments in skill. The increased taxes consequent on par with other forests. acquiring skills, as well as the reduced eligibility for transfers outweigh favorable income effects of the transfers on the ability of citizens to invest. These adverse incentive effects are avoided A DYNAMIC INCENTIVE -BASED AR GUMENT FO R if transfers are conditioned on investments in children’s human CONDITIONAL TR ANS F E R S capital by providing investment incentives directly. The authors subsequently confirm that the results extend to a setting with a Dilip Mookherjee and

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