Doctoral Dissertation Research in Economics: Bandits or States?

Awardees

Suresh Naidu
Professor of International and Public Affairs and Economics
Raul Sanchez de la Sierra
Assistant Professor, University of California Berkeley

$30,001

Some states protect their populations, use restraint in taxation and provide public goods, while others engage in arbitrary expropriation and impede economic growth. Why?

This question has recently received substantial attention in economics, but the existing theory remains exploratory and untested with causal inference methods. Since states are supposed to have the monopoly of the use of violence, social sciences have often described strong states forming out of criminal organizations centralizing violence. It is this first step into the formation of strong states that this study will test using armed groups in eastern Democratic of Congo.

Existing explanations emphasize that high expected value of future potential taxation can induce criminal organizations to abandon arbitrary expropriation. Larger levels of expected taxable income from the population indeed can generate incentives to "bandits" to settle and promote growth for the purpose of taxing it, especially when the environment in which they operate is characterized by a weak state. The opposite can in turn reduce the returns of territorial control, and lead bandits to engage in arbitrary violent expropriations that discourage investment or hurt the tax base potential for output generation. 

In order to provide for the first time empirical evidence on this question with causal inference methods, this project implements the collection of original historical data (1990-2013) on dozens of armed groups in 120 villages in the eastern part of the Democratic Republic of Congo (DRC), where armed groups operate and have operated. There is anecdotal and preliminary evidence that these groups engage in violent expropriations, but they often prefer to settle, build local institutions, provide public goods, and tax output on a repeated basis. The wealth of information accessible about the past of this region if often disregarded, but this study demonstrates that it is possible to collect it and produce high quality disaggregated data in DRC of an area and a period that has none.

Through that period, unusually large changes in world prices for minerals located in DRC have been well documented. This study exploits these changes, as well as village level dates of surprise mineral discovery and exhaustion, in order to provide a causal explanation of how local conditions - the value and type of the taxable output in the village, often minerals - drive economic institutions, which are believed to be essential for private sector growth. In this context, the objective is understanding how local conditions and changes in world market forces cause armed groups to set up local state-like institutions, and to refrain from violence against civilians in the affected villages.

The project has been designed to generate data that will be the basis of a long term research agenda, and allow for the analysis of the following questions: the mechanisms of formation of community defense groups; the extent and social effects of sexual violence; as well as an embedded real context experiment assessing inter-ethnic trust among conflicted groups and the role of trust-inducing institutions.

The resulting dataset has been demonstrated to be of very high quality. It includes local prices; taxation types and levels by armed groups and local authorities; violent expropriations; provision of public goods; degree of participation of armed groups in village administration; local recruitment strategies; and household economic and social histories.