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Take the money and run? The consequences of controversial Privatizations

May 2018

Joint work with Mounu Prem and Francisco Urzúa

Privatization reforms are plagued by controversies regarding sale prices and buyer identity. However, little is known about the subsequent behavior of firms privatized in controversial processes. This paper studies rent seeking behavior of firms privatized by the Pinochet regime in Chile. Using several novel datasets, we characterize privatizations using a data driven algorithm, confirming that some state owned firms were sold underpriced to politically connected individuals, i.e. as controversial. We then compare the rent seeking behavior of similar firms that were privatized differently and find that firms with controversial privatizations benefitted from the Pinochet regime, changed their ownership structures, formed strategic political connections, financed political campaigns, and were more likely to appear in the Panama Papers. These results suggest that firms with controversial privatizations engage in rent seeking and reveal how authoritarian regimes can influence the economy and politics even after a regime change.

 
 Source: Nelson Arancibia

Collective Action in Networks: Evidence from the Chilean Student Movement

April 2018

Hundreds of thousands of students skipped school during the 2011 student movement in Chile to protest and reform educational institutions. Using administrative data on millions of students’ daily school attendance on protest days, this paper presents robust evidence of school absenteeism following a threshold model of collective behavior. Students skipped school on a protest day only when more than 40% of the members of their networks also skipped school. 

 
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The Value of Political Capital: Dictatorship Collaborators as Business Elites

April 2018

Joint work with Mounu Prem

What is the value of political capital for individuals? Towards the end of the Pinochet dictatorship in Chile, military and civilian collaborators entered the business elite, controlling the largest and most important firms in the country. Using a novel panel dataset of board members in these firms, we document a work premium for those who had previously collaborated with Pinochet. After democratization, however, collaborators were removed from boards and their compensation premium disappeared. These results suggest that dictatorship collaborators earn a premium in the business world in dictatorship, but not in democracy.

 
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Distorted Quality Signals in School Markets

October 2017

Nominated to the Juan Luis Londoño Prize to best paper on social issues by a young researcher

Joint work with José ignacio Cuesta and Cristián Larroulet

Information plays a key role in markets with consumer choice. In education, data on school quality is often gathered through standardized testing. However, the use of these tests has been controversial because of behavioral responses that could distort performance measures. We study the Chilean educational market and document that low-performing students are underrepresented in test days, generating distortions in school quality information. These distorted quality signals affect parents' school choice and induce misallocation of public programs. These results indicate that undesirable responses to test-based accountability systems may impose significant costs on educational markets.

 
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Losing Your Dictator: Firms During Political Transition

October 2017

Joint work with Mounu Prem

Can firms transfer distortions across political regimes? To answer this question, we use a novel dataset and a network analysis to study firms during Chile’s transition to democracy. We find that firms with links to the dictatorship were relatively unproductive before the transition, increased their productive capacity, enjoyed higher profits, and obtained more loans from state-owned banks during political transition. We test for different explanations and provide suggestive evidence consistent with strategic behavior aiming to improve their market position in democracy. These results suggests that distortions can be transferred across political regimes. 

 
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Recruiting Migrants for Development: Consequences of a 19th Century Settlement Policy

Reject and resubmit, Explorations in Economic History

This paper studies a settlement policy implemented by the Chilean government between 1882 and 1904 to analyze the relationship between European immigration and development. Based on historical census data, I show that this settlement policy was successful in recruiting Europeans, who located in different parts of the country. Using a panel data of provinces observed between 1860 and 1920, I find a strong, positive, and robust correlation between recruited Europeans and measures of development. Moreover, the arrival of Europeans is strongly associated with local economic output fifty years after the policy was terminated. These results together with narrative historical evidence suggest that the settlement policy was successful in triggering local development.