UCLA International Institute

Well over a trillion dollars worth of state-owned firms have been privatized by governments all around the world since 1980. Economists argue that privatization increases efficiency by placing decisions in the hands of markets rather than public officials. The IMF is sufficiently enamored of privatization that it has included for more than a decade stipulations about the sale of state-owned assets as condition for the receipt of its loans. The evidence that privatization directly increases efficiency, however, is not nearly so clear as most economists would have us believe.

The classic Stigler-Peltzman model, if extended to consider the effects of electoral systems, suggests (a) that majoritarian electoral systems should advantage consumers over producers and (b) that this effect will manifest itself in lower real prices. In an earlier paper, Rogowski and Kayser (AJPS, July 2002) demonstrated that, controlling for all other factors standardly adduced in the extensive “Law of One Price” literature, and for country size, the strongest form of majoritarianism, single member districts (SMD), predicted a ten percent drop in the real 1990 prices of the average OECD country. This cross-national effect survived a plethora of robustness checks and was not driven by any single case, including the United States.

We now extend that empirical analysis to panel data for twenty-three OECD countries over the period 1970-2000, taking advantage also of the numerous changes in electoral systems during that period (France, Italy, Japan, New Zealand). In a country fixed-effects specification (sustained by a joint test of significance on the country dummies), and particularly when missing data are addressed by multiple imputation, the electoral-system price effect is again confirmed as statistically and substantively significant. We suggest (a) that real price differences can serve as an important indicator of policy effects of various institutions and (b) that, given these results, any change in a country’s electoral system will have strong and predictable effects on the balance of consumer-producer power.

The institutionalization of the Dispute Settlement Understanding (DSU) of the World Trade Organization in 1995 has been widely hailed as a triumph of impartial law over national power. The authors argue that the reality of the power of the WTO's Appellate Body falls short of the legalistic model in three essential respects: complainant nations often refrain from bringing cases where the violator is likely to refuse to abide by a negative decision by the Appellate Body; the Appellate Body itself commonly bends the rules of the WTO when confronting powerful defendants; and losing defendants often procrastinate beyond set time limits for compliance, entering into a post-DSU bargaining process with the complainant outside the mechanism of the World Trade Organizaton.