Matthew Ellman Ramon y Cajal Research Fellow, IAE (CSIC)

Contact details: Institut d'Anàlisi Econòmica Campus UAB 08193 Bellaterra Spain Tel.: +34 93 580 6612 Fax: +34 93 580 1452 e-mail: matthew.ellman@iae.csic.es

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Curriculum Vitae: Click here

Published research

Electoral Competition under the Threat of Political Unrest

Joint with Leonard Wantchekon

Quarterly Journal of Economics, 115(2): 499-531, 2000.

This paper studies political competition when there is a risk that one of the parties could instigate political unrest, for example by encouraging rioting, after losing an election. We show that the threat of unrest has a significant impact on voting behaviour and on policy setting. The weaker party’s information about the compromise needed to prevent the stronger party from opting for unrest is critical: the strong party is less likely to win the election when the weak party is better informed, because the weak party can then more reliably prevent political unrest by implementing a compromising, “centrist” policy. Another notable result is the model’s ability to explain platform divergence: uncertainty over the credibility of unrest leads to political posturing. The citations following its publication show that the paper has been important to academics studying how warring factions create democratic institutions as an indirect way to share power.

· published version

· pre-publication working paper

Specificity Revisited: the Role of Cross-Investments

Journal of Law, Economics and Organization, 22(1):234-57, 2006.

This paper characterises when specificity is needed to increase efficiency in bilateral contractual relationships. Unlike previous work, in which traders select specific technologies as a way to commit themselves to trading jointly, I demonstrate the value of specificity in settings with long-term contracting. The main results are that: traders opt for specificity when one trader makes a cross-investment and either (1) this cross-investment has a direct externality on the other trader, (2) both parties invest or (3) private information is present. Specificity (e.g. from non-salvageable investments, specific assets and technologies, narrow business strategies, and exclusivity restrictions) is equally effective regardless of which trader's alternative trade payoff is reduced. Furthermore, the mechanism works both with and without renegotiation. I apply the theory to offer a novel perspective on vertical integration and a regulatory debate in franchising. I also test the theory using data on non-compete covenants.

· published version

· pre-publication working paper

What Do the Papers Sell? A Model of Advertising and Media Bias (Working paper version)

[Click here for latest version (April 2008)]

Joint with Fabrizio Germano  

Economic Journal, Forthcoming.

We model the market for news as a two-sided market where newspapers sell news to readers who value accuracy and sell space to advertisers who value advert-receptive readers. In this setting, monopolistic newspapers under-report or bias news that sufficiently reduces advertiser profits. Paradoxically, increasing the size of advertising eventually leads competing newspapers to reduce advertiser bias. Nonetheless, advertisers can counter this effect if able to commit to news-sensitive cut-off strategies, potentially inducing as much bias as in the monopoly case. We use these results to explain contrasting historical and recent evidence on commercial bias and influence in the media.

Recent Working Papers

The Optimal Length of Contracts with Application to Outsourcing

UPF DP 965, 2006.

This paper resolves three empirical puzzles in outsourcing by formalizing the adaptation cost of long-term performance contracts. The main insight is that long-term contracts interfere with beneficial market forces when side-trading with a new partner (to exploit an adaptation) alongside a long-term contract is less effective than switching to the new partner when the contract expires. Long-term contracts that prevent holdup of specific investments then induce holdup of adaptation investments. Contract length therefore trades off specific and adaptation investments. Length should increase with the importance and specificity of self-investments, and decrease with the importance of adaptation investments for which side-trading is ineffective. My general model also shows how optimal length falls with cross-investments and wasteful investments.

Organisational structure, communication and group ethics [Revised Version 2008] [Appendices]

Joint with Paul Pezanis-Christou                        [originally  UAB working paper number 682.07, 2007]

This paper investigates experimentally how organisational decision processes affect the moral motivations of actors inside a firm that must forego profits to reduce harming a third party. In a “vertical” treatment, one insider unilaterally sets the harm-reduction strategy; the other can only accept or quit. In a “horizontal” treatment, the insiders decide by consensus. Our 2-by-2 design also controls for communication effects. In our data, communication makes vertical firms more ethical; voice appears to mitigate “responsibility-alleviation” in that subordinates with voice feel responsible for what their firms do. Vertical firms are then more ethical than the horizontal firms for which our bargaining data reveal a dynamic form of responsibility-alleviation and our chat data indicate a strong “insider-outsider” effect.

The Donor Problem

Joint with Klaus Abbink        CeDEx Discussion Series, 2004-15; UPF DP 796, 2006.

Donors often rely on local intermediaries to deliver benefits to target beneficiaries. The selected recipients are natural monitors: they observe what they receive. However, recipients may withhold complaints when feeling grateful to the intermediary for selecting them, or unentitled to benefits. Furthermore, the intermediary may distort selection (e.g. by picking richer recipients who feel less entitled) so as to reduce complaints. We design an experimental game representing the donor’s problem. In one treatment, the intermediary selects recipients. In the other, selection is random - as by an uninformed donor. In our data, random selection dominates delegation of the selection task to the intermediary. Selection distortions are similar, but intermediaries embezzle more when they have selection power because they correctly anticipate that gratefulness for being selected will reduce complaints. Our results identify a problem that could arise in a wide variety of development settings, including social funds, decentralisation and participatory projects where there is a risk of ‘capture’.

Does Privatising Public Service Provision Reduce Accountability?

UPF DP 997, 2006.

This paper studies how privatising service provision (shifting control rights and contractual obligations to providers) affects political accountability. There are two main effects. (1) Privatisation demotivates governments from investigating and responding to public demands, since providers then hold up service adaptations. (2) Privatisation demotivates the public from mobilising to pressure for service adaptations, since private providers indirectly hold up the public by inflating the government's cost of implementing these adaptations. I also characterise when politicians will be biased towards/against privatising to reduce/increase public attention and I show why privatising utilities may reduce subsidies and increase consumer prices.

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