Haas School of Business

First-Person

Ernesto Dal Bó

Ernesto Dal Bó

Faculty Research Director, Center for Nonprofit and Public Leadership
Harold Furst Chair in Management
Philosophy and Values
Economic Analysis and Policy Group

Ernesto Dal Bó: Understanding Governance to Help Societies Achieve Success

Using the prism of an economist, Ernesto Dal Bó studies the complex two-way street of political and market failures – and how to address them.

  • Is corruption through violence different from corruption by bribery?
  • What are the economic and political causes of failed states?
  • Can shielding public officials from prosecution make them more honest?
  • Are political dynasties a problem for leveling the political playing field?
  • Does corruption in the country make firms less efficient?
  • Do higher wages attract better public servants?

These are just a few of the questions that Dal Bó, the Phillips Girgich Associate Professor of Business at Berkeley-Haas, has studied at close range. His underlying goal: to shed light on how economic forces shape and are shaped by the health of political and social institutions.

Dal Bó’s research has taken him to remote villages in Mexico, to judges’ chambers in Colombia and to the U.S. Congress. At the Berkeley-Haas Institute for Business and Social Impact, he is now applying his analytical methods and insights to the cross-sectoral challenges of making societies both more prosperous and more just.

“If you think about corporate social responsibility, social entrepreneurship, and the role of nonprofits, you can trace each of these to some adaptation of society to market and government failures,” he says. “I am a political economist – that is, an economist who looks at economics and politics together. Why is this important? Because governance is at the root of economic development and of all the modalities of private sector business.”
Having grown up in Buenos Aires during Argentina’s period of dictatorship, Dal Bó became convinced that traditional thinking on governance didn’t capture the challenges.

“American textbooks in economics and politics posit very mild-mannered agents acting within neat institutional settings,’’ he says. “This did not match our experience of growing up in the politically repressive and economically volatile dictatorship of Argentina in the 1970s and ‘80s.”

The standard theories about corruption, for example, assumed that corrupt public officials were privileged decision-makers who auctioned their support to the highest bidders. Dal Bó suspected that coercion and the threat of violence was often as important as bribery, which meant that standard recipes for corruption might prove ineffective.

Dal Bó examined those issues in a series of papers published with his brother Pedro Dal Bó, an associate professor of economics at Brown University. In “Plata o Plomo? Bribe and Punishment in a Theory of Political Influence,” published by the Dal Bo brothers with Rafael Di Tella of Harvard Business School, the researchers showed that honest reformers are often blocked or driven away by threats of violence. The more violent and corrupt the environment, they found, the lower the quality of public officials was likely to be.

Over the years, Dal Bó has studied a host of other issues, including the complex links between economic shocks and violent social conflicts. He has also investigated the effect of term length on the job performance of politicians, finding that longer tenures in office can lead to more productive governance. In another study, he found that giving senior public officials judicial immunity from prosecution could actually reduce corruption in countries where the judicial systems are weak and interest groups use baseless charges of corruption to block normal governance. (In countries with good judges and courts, he cautioned, immunity from prosecution was likely to increase corruption.)

Dal Bó’s most recent research, based in Mexico, examined whether higher wages attract better public servants. A considerable literature theorized that higher salaries would attract poorer candidates who cared about money rather than public service. Dal Bó and two colleagues disproved that, studying an experiment in which the Mexican government advertised identical jobs at different wages. Their finding: higher-wage offers attracted candidates who were better qualified, more motivated and had higher IQ’s.

The same study also showed that jobs were much harder to fill in areas that were remote, unpleasant or unsafe. The lesson: government can help or hinder a labor market based on how much it provides adequate infrastructure and public safety.

As Dal Bó looks into the future, he sees himself as a connector: “I see my work at Berkeley-Haas as connecting groups together and connecting our intellectual tradition to the themes that have occupied me for many years. With the Berkeley Center for Political Economy, our new Institute for Business and Social Impact, and other programs, I think we can shape a stream of high quality students that can go on to change organizations and the world.”

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