Category: Political Science

The original paper: download

Summary for each part:

I: The mathematical solution to constructing a rational economic order is to achieve the same marginal rates of substitution between any two goods. This is not realistic, because it relies on the assumption of complete command of knowledge in a central single mind, while in the real society the knowledge is dispersed among separate individuals. This causes misconception about the nature of economic problem, which is essentially how to efficiently allocate resources by utilizing individual knowledge, rather than utilizing it in its integrated form.


II: Utilizing knowledge, which involves communicating it to the planner and among different individuals, is important in designing an efficient economic system, which can be in the form of central planning, completion and monopoly. Which kind of the economic systems is more efficient depends on whether the existing knowledge can be fuller used.


III: Different kinds of knowledge define different positions of the economic systems. The prominent position of central planning in public imagination is due to the exaggeration of the importance of scientific knowledge. Selecting a group of experts to command such knowledge is actually only a fraction of the wider problem. The knowledge of the particular circumstances, which is not always available, is equivalently socially useful, although it is sometimes regarded as disreputable if one gains advantage by using this knowledge.


IV: Economic problems arise as a result of change of circumstances, making the knowledge of the particular place and time important in making economic decisions. This sort of knowledge, however, cannot be statistically calculated therefore cannot be conveyed to the central authority who make plans based on statistical information.


V: Decentralization is necessary in solving economic problems, because adaptions to changes in economic systems require the knowledge of the particular circumstances to be promptly used. A price system helps coordinate separate actions for individuals whose visions in their own fields sufficiently overlap through intermediaries, thus brings about the outcome that might have been achieved by central planning with complete information.


VI: The price system acts as a mechanism that communicates only the most essential information for individuals to take the right action, and it extends the span of resources utilization beyond the control of any single mind. Like language, this is one of the formations upon which the foundation of civilization is built.


VII: The dispute about the indispensability of price system is not purely a political dissent, but also intellectual and methodological differences. Schumpeter’s argument that valuation of factors of production is implied in the valuation of consumers’ goods is untrue, because it also depends on the supply of the factors. His argument disregards the essential fact of imperfection of knowledge in the real world. Thus the solution to the economic problem has to be processed by interactions of people who possess their partial knowledge.


In sum, the key take-away ideas are:


In the real world, knowledge is spread throughout the society. The knowledge of particular circumstances of place and time is not always public available, but it is useful in making economic decisions. This is an essential feature of the real world’s economic problem, which makes central planning inefficient and infeasible. That’s because central planning requires a single mind processing all the knowledge. Decentralization overcomes this problem via a price system in which individuals with their own partial knowledge coordinate with each other and utilize resources that are beyond the control of any one person.

My session is on Nov 22, 2014.

10:00 – 11:45 a.m.
Session 22B
Macroeconomics and International Economics
Organizers: Yu Hsing, Southeastern Louisiana University
Session Chairs: Lirong Liu, Sam Houston State University
Papers: “Tax Evasion through Trade Intermediation: Evidence from Chinese Exporters”
Xuepeng (Paul) Liu, Kennesaw State University (Contact Author)
Huimin Shi, Renmin University of China
Michael Ferrantino, The World Bank

“Total Factor Productivity and China’s Miraculous Growth: An Empirical Analysis”
Jianhua Zhang, The People’s Bank of China (Hangzhou)
Chunxia Jiang, Middlesex University Business School (Contact Author)
Peng Wang, The People’s Bank of China

“Do Governments Both Respond to and Counteract International Pressure for Democracy and Human Rights?”
Judith Kelley, Duke University
Yuqing Hu, The George Washington University (Contact Author)

“The Distributional Effects of Monetary Policy in an Open Economy”
Ying-Syuan Li, Fu-Jen Catholic University (Contact Author)

“Targeting with High Priority Violation Policy: An Empirical Analysis”
Lirong Liu, Sam Houston State University (Contact Author)
Zhou Yang, Robert Morris University

Discussants: Ying-Syuan Li, Fu-Jen Catholic University
Chunxia Jiang, Middlesex University Business School
Xuepeng (Paul) Liu, Kennesaw State University
Yuqing Hu, The George Washington University
Lirong Liu, Sam Houston State University

International World Congress, 6-10 June 2014, Dead Sea, Jordan

My presentation:

Slides download: IEA_June_6_2014

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An undergoing paper coauthored with Judith Kelley


The international community is often striving to promote political and human rights reforms in recalcitrant countries. As the study of such efforts has matured, there has been growing concern that although governments may undertake the desired reforms they may counteract them by switching from the targeted type of misconduct into another spillover type of misconduct. Unfortunately, the simple correlations between the intervention and behavioral changes cannot lead to casual conclusions, as they can be caused by the intervention or other factors, or it is a result of reverse casualty, that is the pressure targets aberrant countries. These various explanations of a correlation make it essential to scrutinize the data for the presence of the theorized causal mechanisms. This article presents a framework for assessing the plausibility of counteraction. Specifically, counteraction requires conditional behavioral shifts, that is, international pressure should be accompanied not only by deterioration in the spillover behavior but also by improvements in the targeted behavior. It then revisits two prior studies, one finding that human rights shaming is associated with more physical terror, the other that international election monitors harm governance. In neither case do we find evidence of the required causal mechanisms of the counteraction. Lastly, the article discusses how exacting the standards of evidence should be in the study of policy actions that affect vulnerable populations. It thus contributes methodologically, revisits important prior findings, and raises important normative questions.


Since the end of the Cold War, international election monitoring has been widely practiced by organizations all over the world. By directly observing the electoral process and evaluating the outcomes, it pressures governments to hold democratic elections. Studies have shown that election monitoring missions can play a positive role in facilitating democracy by deterring fraud, increasing confidence in the electoral process, and serving as third-party mediators (Bjornlund, 2004; Hyde, 2007). Monitors are able to effectively prevent election malpractices such as stuffing the ballot boxes and electoral violence (Hyde, 2007; Daxecker, 2012) on the election-days. However, there is another unnoticeable trend that might undermine the effectiveness of international monitoring, that is, the incumbents may strategically adapt their tactics by shifting away from overt election-day cheating to subtle manipulation, which is less likely to be observed and criticized (Daxecker, 2012) and which might be more harmful for the governance (Simper and Donno, 2012). International election monitoring, a widely accepted tool for democracy promotion, is now facing new challenges.

Not many economists have studied the issue on international election monitoring and manipulation, but it has attracted significant attention from political scientists, among whom there is a growing body of literature in an endeavor to measure or explain the effects of international monitoring.

A large volume of theories focuses on manipulation as a way to win elections. Elections generate public information that affects how the incumbent interacts with other elites and citizens (Little, 2012b), during which manipulation is considered as a hidden action to distort public information (Kuhn, 2012) and reports from international monitors of good reputation can help render election results credible (Magaloni, 2009; Ferson, 2011).

Other theories argue that international benefits such as international investment, foreign aid, preferential trade agreements and military support give electoral autocrats the incentive to invite international observers and manipulate elections to minimize international criticism (Beaulieu and Hyde, 2009; Hyde, 2011). Economic and political stability, transparency, and democratic political institutions are examples of valued and rewarded state-level characteristics.  For countries that are not perceived to possess the characteristic have an increased incentive to modify their behavior in order to gain more international benefits and to signal their commitment to skeptical or indifferent audiences (Hyde, 2011b).

Most of the existing theories adopt the signaling (Hyde, 2011b), decision-theoretic (Lehoucq, 2003; Fearon, 2011) or game-theoretic approach (Little, 2012b), in which inviting monitors are seen as a signal of a government’s commitment of democracy, and the incumbents face the tradeoffs between increasing their probability of winning elections and the chance that they will be captured for committing fraud and the associated decrease in legitimacy, credibility, or aid, so they strategically achieve an equilibrium in which the marginal cost of manipulation equals the expected marginal benefits of international support or winning the election. However, none of the models consider the more general equilibrium in combination of the short-run objective of election victory and long-run objective of development (such as gaining international benefits), or give out a benchmark that the international monitoring can be beneficial or harmful.

Regarding the empirical research, a lot works have been done to show the association between international monitoring, election manipulation and government outcomes, but few directly test the casual relationship. One possible reason is that any cross-national study attempting to examine the domestic effects of international observers would be plagued by endogeneity problems. At the aggregate level it is difficult to distinguish between an election that is clean because of the presence of international observers and an election that would have been clean regardless of their presence. One may use counterfactuals to make a persuasive argument, but demonstrating causality using cross-national evidence would be nearly impossible.

Nevertheless, there are still a handful of papers testing the casual effects of international monitoring on manipulation and a variety of other governance outcomes. For example, Hyde (2010) presented the first field-experimental study in international election monitoring, in which the international observers were randomly assigned in the 2004 Indonesia presidential election. By examining the micro level electoral data, she found that incumbent presidential candidate performed better in internationally-monitored villages and the presence of observers had a measurable effect on the votes cast. Simpser and Donno (2012) tested the effects of high-quality monitoring on governance, in which they instrumented for election monitoring by identifying sources of variation in the likelihood of monitoring. They used regional rate of high-quality election monitoring as IV, because changes in the operation of monitoring organizations are likely to affect the probability of monitoring in the region where the organization specializes, but unlikely to affect governance directly or via other channels. Both of the examples provide evidence of the casual relationship, but since they implicitly rely on the assumption that politicians manipulate the election in order to win more votes, they thus neglect other possible channels through which the international election monitoring can impact the governance.


Beaulieu, Emily, and Susan Hyde. 2009. “In the Shadow of Democracy Promotion : Strategic Manipulation, International Observers, and Election Boycotts.” Comparative Political Studies, 42: 392-415.

Bhirnlund, Eric. 2004. Beyond Free and Fair: Monitoring Elections and Building Democracy. Washington DC and Baltimore, MD: Woodrow Wilson Center Press and Johns Hopkins University Press.

Daxecker, Ursula. 2012. “All Quiet on Election Day? International Election Observation and Incentives for Violent Manipulation in African Elections.” Journal of Peace Research, forthcoming.

Fearon, James. 2011. “Self-Enforcing Democracy.” The Quarterly Journal of Economics, 126: 1661-1708.

Hyde, Susan. 2007. “The observer Effect in International Politics: Evidence from a Natural Experiment.” World Politics, 60 (1): 37-63.

Hyde, Susan, and Angela O’Mahony. 2010. “International Scrutiny and Pre-electoral Fiscal Manipulation in Developing Countries.” The Journal of Politics, 72 (3): 690-704.

Hyde, Susan. 2011. “Catch Us if You Can: Election Monitoring and International Norm Creation.”American Journal of Political Science, 55 (2): 201-462.

Hyde, Susan. 2011. The Pseudo-Democrat’s Dilemma: Why Election Observation Became an International Norm. Cornell University Press.

Hyde, Susan. 2012. “Does Information Facilitate Self-Enforcing Democracy? The Role of International Election Monitoring.” Working paper.

Lehoucq, Fabrice. 2003. “Electoral Fraud: Causes, Types, and Consequences.” Annual Review of Political Science, 6: 233-256.

Kelley, Judith. 2008. “Assessing the Complex Evolution of Norms: The Rise of International Election Monitoring.” International Organization, 62: 221-255.

Kelley, Judith. 2012. Monitoring Democracy: When International Election Observation Works, and Why It Often Fails. Princeton University Press.

Kuhn, Patrick. 2012. “To Protest or Not: The Election Losers’ Dilemma.” Manuscript.

Little, Andrew. 2012. “Elections, Fraud, and Election Monitoring in the Shadow of Revolution.” Quarterly Journal of Political Science, 7: 249-283.

Little, Andrew. 2012. “Fraud and Monitoring in Noncompetitive Elections”. Working Paper.

Little, Daniel. 2011. Varieties of Social Explanation. Westview Press.

Magaloni, Beatriz. 2009. “The Game of Electoral Fraud and the Ousting of Authoritarian Rule.” American Journal of Political Science, 54(3): 751-765.

Shleifer, Andrei, 2002. “The Memu of Manipulation.” Journal of Democracy, 13: 36-50.

Simpser, Alberto, and Daniela Donno. 2012. “Can International Election Monitoring Harm Governance?” The Journal of Politics, 74 (2): 501-513.