RESEARCH

Publications

1) "Economic Influence Activities." Journal of Economics & Management Strategy. 2018: Volume 27, No. 4, pages 830-843. https://doi.org/10.1111/jems.12249

Abstract: Firms frequently make operational and strategy decisions to gain political influence. They locate plants, expand workforces, or choose suppliers, with the aim of affecting the economy and the electoral success of politicians. This behavior constitutes a nontraditional form of influence, which I refer to as economic influence activities. In this paper I show how such activities influence policymaking and why firms may prefer it to more traditional influence activities such as campaign contributions. What distinguishes economic influence activities is that a firm’s strategy choices affects the state of a local economy and, in turn, the evaluations that voters make of the performance of an officeholder. I show how firms can use this capability to extract subsidies and policy favors from incumbent office-holders.

2) "Startups Are Turning Customers into Lobbyists" (with Guy Holburn). Harvard Business Review: October 24, 2017. 

https://hbr.org/2017/10/startups-are-turning-customers-into-lobbyists

Abstract: How can new firms overcome the regulations that protect incumbents? Lobbying for policy reform isn’t much of an answer, because incumbents generally have the benefit of long-term relationships with government agencies built up over many years. Recent research finds that some insurgent firms have prevailed on the regulatory front by using a strategy straight out of the playbook of environmental activists – mobilizing stakeholders to become political advocates. Organized demonstrations of support by stakeholder groups can send a powerful signal to policymakers. Firms mobilize their customers – one important stakeholder group – in three primary ways: online petitions, partnerships with other organizations, and customer associations.

3) "Durable Policy, Political Accountability, and Active Waste" (with Steven Callander). Quarterly Journal of Political Science. 2017: Volume 12, No. 1, pages 59-97. 

http://dx.doi.org/10.1561/100.00016120

Abstract: The policy choices of governments are frequently durable. From the building of bridges to the creation of social programs, investments in public infrastructure typically last well beyond a single electoral cycle. In this paper we develop a dynamic model of repeated elections in which policy choices are durable. The behavior that emerges in equilibrium reveals a novel mechanism through which durability interacts with the shorter electoral cycle and distorts the incentives of politicians. We find that a government that is electorally accountable nevertheless underinvests in policy, that it deliberately wastes investment on projects that are never implemented, and that the type of policy it implements is itself Pareto inefficient. The first two distortions match evidence from infrastructure policy in western democracies, and the third identifies a distortion that has heretofore not been explored empirically. Notably, these effects emerge solely due to the interaction of policy durability and political accountability, and not from corruption, poor decision making, or voter myopia.

Working Papers

1) "Does the Foreign Buyers Tax Reduce Foreign Demand? Evidence from Superstitious Beliefs in Real Estate Pricing." (with Lu Han)

Abstract: This paper analyzes the effects of the recent Ontario Non-Resident Speculation Tax (NRST) on housing markets, using the transaction-level data for the Greater Toronto Area. Despite the popular belief that the inflow of Chinese investors has been partly responsible for the recent rapid house price growth, evaluating the effectiveness of the NRST is challenging for two reasons. First, buyer nationality is difficult to observe. Second, the implementation of the NRST coincided with a number of other policies targeted at the housing market. To address these challenges, we propose a behavioral approach to infer the policy’s impact on foreign housing demand from estimating how culture-dependent numerological superstition affects home purchase decisions differently before and after the policy. Our results indicate that superstition bias enters real estate pricing and that such bias is culture dependent. While Chinese buyers may view 8 as lucky and 4 as unlucky, others may view 13 as unlucky. Consistent with this, we find that for hedonically identical homes, there is a premium associated with addresses containing “8”s and a discount associated with addresses containing “4”s in Chinese neighborhoods; in contrast, there is always a discount associated with addresses containing “13”s across the GTA. Further, the discount for unlucky addresses is substantially larger than the premium for lucky ones, consistent with theories of loss aversion. Finally, we find that the implementation of the NRST substantially reduced the discount associated with unlucky “4”s but had no effect on the discount associated with unlucky “13”s, indicating that the NRST dampens the demand mostly from Chinese investors. This result is stronger in condominium markets than in house markets, possibly due to the fact that the former is treated as an easier investment vehicle for foreigners. Further tests suggest that our conclusions are unlikely to be driven by endogeneity.

2) "Economic Influence Activities, Congressional Committees, and the Industrial Geography of the U.S." (with John M. de Figueiredo)

Abstract: This paper empirically examines the economic influence activities (EIA) of firms. We argue that firms invest in jobs and establishments in congressional committee member districts that have oversight and influence over their businesses and industries. This investment increases as the legislator increases in power in Congress. However, as the legislator exits the committee, this investment slows. Firms do not exit their investments, but cease to continue investment in the district. Our theory makes three predictions. First, EIA by firms will be higher in congressional districts where the legislators have substantial political influence over the firm, relative to congressional districts in where legislators have little influence over the firm. Second, EIA will increase with the legislators’ power on the focal committee. Third, when a legislator exits the committee, EIA will diminish. We test these predictions by analyzing the Trinet biennial census of establishments, mapped into the congressional committee structure of the U.S. Congress. With these datasets, we are able to track the investment and employment of firms in each industry in each congressional district over time. Using fixed effects models, we show that the predictions of the theory are largely supported in the data. We explore
causality by using exogenous exits by politicians by death and scandals to further complement our core analysis.

Abstract: In addition to lobbying and making political campaign contributions, firms can mobilize their stakeholders – customers, employees, suppliers – through public rallies, petitions and letter-writing campaigns to exert pressure on politicians. Firms such as Uber and AirBnb have regularly used these tactics in recent years, but most politically-active firms in fact tend to lobby rather than mobilize stakeholders. We develop a model of
stakeholder mobilization that delineates the strategic mechanisms through which stakeholder action provides useful and credible information to policymakers and is effective in influencing policymakers’ decisions. Our model shows that the intensity of voters’ preferences, in addition to number of supporters, is the key factor governing the type of mobilization campaign organized. Firms with a large number of stakeholder with moderate intensity preferences are more likely to organize their stakeholders via low cost events – such as online petitions. Firms with a smaller number of stakeholders, but those with a sufficiently high preference intensity, are more likely to organize their stakeholders via high cost events – such as public rallies. Furthermore, we find that stakeholder events are effective only for important policy issues, when the policymaker is uncertain about voter preferences for the policy, and when the firm possesses more accurate information on voter preferences.

4) "Informational Industrial Blackmail" (with Al Slivinski)

Abstract: It is often observed that politicians “overpay” to attract business investment to their jurisdiction, often despite condemnation by voters and the media. Standard explanations of this phenomenon hinge on the effect of competition among jurisdictions for the investment, leading to a version of the winner’s curse. This paper proposes an alternative explanation that turns on the interaction between informational asymmetries between voters and politicians and electoral incentives. We show that when business investment is economically impactful it can be used to positively distort the informational inferences of voters regarding incumbent politicians. Our key results show than even when it is common knowledge that the benefits of the investment, while positive, are smaller than the cost of subsidizing investment, that politicians will still offer subsidies, and this will enhance their electoral prospects. Further, we show that even when there is some likelihood the business investment would have occurred in the absence
of subsidies, the same equilibrium behavior emerges.

Abstract: This paper examines the impact of operational time-horizons on corporate
governance. Managerial “short-termism” is problematic in industries where long product development and life cycles require managerial decisions that are similarly farsighted in scope. By protecting managers from the pressures that induce short-termism I show how corporate governance and anti-takeover provisions can mitigate short-termism for firms with long operational time-horizons. I predict that firms operating in long time-horizon industries will employ more anti-takeover provisions than firms in short time-horizon industries. I examine this empirically and find support for this prediction.

6) "Nonmarket Strategies of Market Rivals: Theory and Evidence from Uber and the Taxi Industry" (with Guy Holburn and Kartik Rao)

Abstract: We examine how firms strategically lobby policy makers in a nonmarket environment characterized by a new market entrant going up against established incumbents. We argue that attributes of policy makers such as their institutional status, and their newness to office has a positive relationship with both their likelihood of being targeted by firms as well as the speed with which firms respond to their rivals’ lobbying of such policy makers. Further, we argue that a larger differential in accumulated lobbying capital between competing interest groups negatively impacts the likelihood and the response speed with which firms target policy makers. We employ a repeated-hazards event history analysis to test our predictions in the context of Uber’s entry in the Toronto taxi market using a novel lobbying dataset from the Toronto City Council.

Work in progress

"Fake news, media credibility, and political accountability" (with Anqi Li and Ken Shotts)

"Confronting Opposition to Disruptive Innovation" (with Guy Holburn)

"Dynamic Competitive Experimentation and Organizational Change" (with Matt Davison and Bryan Hong)

© 2019  by Davin Raiha