Although they are stable, party constitutions are not immutable. Over the past decade, parties have become increasingly decentralized – especially with respect to leadership selection. Chapter 7 concludes by assessing the implications of the book’s findings for strategically motivated party leaders contemplating institutional change. The chapter also considers similarities and differences with US primaries and discusses how decentralized structures may shape candidate quality. Kernell concludes by discussing avenues for future research, arguing party – as well as electoral – institutions should be accounted for in studies of democratic responsiveness.

Corporate finance research requires close consideration of the assumptions underlying the econometric models applied to test hypotheses. This is partly because, as the field has evolved, more complex relationships have been examined, some of which pose problems of endogeneity. Endogeneity is one problem that violates the assumptions of the CLRM. It is so central that this book devotes a whole chapter to discussing it. The chapter covers the sources of endogeneity bias and the most commonly used methods that can be applied to cross-sectional data to deal with the endogeneity problem in corporate finance. These methods cover two-stage least squares (so-called IV approach), treatment effects, matching techniques, and regression discontinuity design (RDD). An application is provided for an IV approach and an RDD approach. The chapter ends with an application of the most common methods to real data, lab work, and a mini case study.

Facing the challenges of aging populations, new technologies provide a potential solution to meeting the increasing needs associated with demographic changes by increasing productivity in healthcare production. However, decision-makers require evidence of whether the adoption of new technologies improves the efficiency of healthcare resource use. Cost-effectiveness analysis (CEA) is a methodology for evaluating new technologies by comparing a new intervention with the current intervention (or mix of different interventions) used for treating the same patient group. This chapter explores the theoretical foundations of CEA and the conditions required for CEA to inform decision-makers about the efficiency of implementing the new intervention are identified. The implications of using CEA as a basis for decision-making in the absence of these theoretical conditions are discussed, and solutions to addressing the efficiency problems under real-world conditions are derived. Where practical considerations limit the ability of decision-makers to apply these solutions, an alternate practical approach, focused on efficiency improvements as opposed to efficiency maximization, is presented.

Connectionist approaches to social networks often speak of flows of ideas, attitudes, and behaviors through ties as social influence and as peer influence in the specific case of flows among friends and acquaintanceships. Modeling social influence is no easy task. How do we determine where a particular idea came from in a network and who influenced whom? In establishing the presence of social influence, a researcher must theoretically and empirically address many potentially confounding factors and alternate explanations. In the previous chapter, we covered network approaches to generic flows at scale. In this chapter, we more thoroughly cover some of the thorny issues involved in tracing interpersonal influences and key modeling strategies in obtaining more detailed views of what flows and to whom.

This chapter addresses the challenge of endogeneity, testing Master Hypothesis 4. Some critics of the grievance-based literature argue that endogeneity may undermine the link between exclusion and conflict, and by implication the opposite one linking inclusion to peace. Endogeneity derives from the fact that the governments' decisions to include or exclude could be motivated by the anticipation of conflict. We counter this threat to inference by articulating a causal pathway that explains ethnic groups' access to power independently of conflict. Focusing on postcolonial states, we exploit differences in colonial empires' strategies of rule to model which ethnic groups were represented in government at the time of independence. This identification strategy allows for estimating the exogenous effect of inclusiveness on conflict. We find strong and systematic evidence that - at least for the post-colonial world - inclusion in governmental power sharing systematically reduces the likelihood that ethnic groups become involved in ethnic civil war. Our instrumental-variable analysis confirms Master Hypothesis 4, because we have found that governments tend to co-opt potential rebels rather than excluding them.

In this chapter, we explore an actor-centric approach that emphasizes strategic interaction and offers an alternative to IV-estimation to pursue the evaluation of Master Hypothesis 4. We proceed in two steps. First, we introduce a simple formal model that captures the most important strategic dimension and highlights what is crucial for reverse causation: The conditions under which governments are likely to share power depending on the level of threat posed by a domestic challenger. As we have shown in Chapters 3 and 6, previous research on the origins of power sharing highlights either government incentives for the co-optation of threatening challengers through power sharing arrangement or risk-diversion by means of exclusion so as to avoid perilous infighting. Rather than favoring either consideration at the expense of the other, the model presented here unifies these mechanisms and shows that both have their place - depending on the challenger's level of threat as well as the government's ability to provide credible guarantees. In a second step, the chapter provides a novel statistical estimator that closely mirrors the strategic logic of the theoretical model, but also accounts for the selection on unobservables. Applied to data at the level of ethnic groups around the globe since World War II, the model offers strong evidence that governments do indeed strategically use power sharing as a way of managing the risk of conflict. In short, power sharing is systematically endogenous to conflict as suggested by Master Hypothesis 4. Moreover, the results reaffirm that power sharing systematically causes peace, and that naïve analyses that do not account for endogeneity tend to underestimate this effect.

We start this conceptual and theoretical chapter by recapitulating previous work on exclusion and civil war by outlining how it connects political exclusion and grievances with the onset of conflict. Consequently, if power sharing reduces inequality and exclusion, peace becomes more likely through a grievance-reducing effect. In addition, power sharing can also bring peace through confidence building. After defining the key notion of power sharing practices, we introduce our first Master Hypothesis about linking both governmental and territorial power-sharing practices to the reduction of civil conflict. The rest of the chapter advances four additional master hypotheses that correspond to the four initial challenges confronting research on power sharing and conflict that were introduced in Chapter 1. First, we derive Master Hypothesis 2 by arguing that practices channel the main conflict-reducing effect of formal power-sharing institutions and also reduce conflict even in the absence of formal institutions. According to Master Hypothesis 3, power-sharing practices have a pacifying effect both before and after the first conflict but the risk of conflict onset is generally higher in the latter case. With Master Hypothesis 4, we address the important issue of endogeneity by showing that governments introduce power-sharing arrangements mostly as a way to co-opt potentially violent challenges to their sovereign power. Finally, under the heading of Master Hypothesis 5, we show how territorial power sharing, especially in relationships already characterized by past violence, may be insufficient to build confidence in support of stable peace. In such cases, autonomy and other territorial approaches are more effective if combined with central power-sharing practices.

Weak and strong cross-sectional dependence are discussed. Various spatial approaches to model cross-sectional dependence, such as the spatial error or spatial regressive approach for static or dynamic models, are introduced. Issues of endogeneity of spatial weight matrix, higher-order spatial weight matrix, and the mixed spatial and factor process are considered. The Lagrangian multiplier and CD tests for cross-sectional uncorrelation for various types of models are also discussed.

Focusing on regional autonomy arrangements, this chapter investigates, to what extent, and in what form, territorial power sharing mitigates civil conflict (see Master Hypothesis 1b). Our point of departure is again our past research indicating that exclusion of ethnic groups increases the risk of internal conflict. As argued in Chapter 3, however, such results do not automatically imply that regional inclusiveness will guarantee peace, especially if the relationship between an excluded group and the incumbent government has already seen violence. Based on a global sample of ethnic groups as provided by the Ethnic Power Relations dataset, here we show that, in such situations and on its own, regional autonomy is likely to be"too little, too late." It is too little because only full inclusion through governmental power sharing reduces conflict propensity significantly (see Master Hypothesis 5); and it is too late since regional autonomy could be effective, but only if offered in a timely, preventive fashion before group-government relations turn violent (see Master Hypothesis 3). Accounting for endogeneity, we also instrument for autonomy in postcolonial states by exploiting that French, as opposed to British, colonial rule rarely relied on decentralized governance. This identification strategy suggests that naïve analysis tends to underestimate the pacifying influence of decentralization.

Focusing on regional autonomy arrangements, this chapter investigates, to what extent, and in what form, territorial power sharing mitigates civil conflict (see Master Hypothesis 1b). Our point of departure is again our past research indicating that exclusion of ethnic groups increases the risk of internal conflict. As argued in Chapter 3, however, such results do not automatically imply that regional inclusiveness will guarantee peace, especially if the relationship between an excluded group and the incumbent government has already seen violence. Based on a global sample of ethnic groups as provided by the Ethnic Power Relations dataset, here we show that, in such situations and on its own, regional autonomy is likely to be ``too little, too late.'' It is too little because only full inclusion through governmental power sharing reduces conflict propensity significantly (see Master Hypothesis 5); and it is too late since regional autonomy could be effective, but only if offered in a timely, preventive fashion before group-government relations turn violent (see Master Hypothesis 3). Accounting for endogeneity, we also instrument for autonomy in postcolonial states by exploiting that French, as opposed to British, colonial rule rarely relied on decentralized governance. This identification strategy suggests that naïve analysis tends to underestimate the pacifying influence of decentralization.

Chapter 3 first discusses separately and in an analytical way the main properties of the institutions identified by the different approaches reviewed in Chapter 2. The property space of the term ‘institution’ is unpacked in the following set of analytical properties: stability, normativity, sanctionability, enforcement, layering, intentionality, endogeneity and efficiency. In the second part of the chapter, I propose a typology of different institutions based on the values these properties have. This exercise allows inherent and constitutive difficulties in institutional analysis to emerge. It is necessary to take a clear stand on these problems and to try to disentangle the definitional maze. The chapter concludes by discussing the fundamental difference between ‘norms’ and ‘rules’ and suggests a line along which this can be established.

This chapter summarizes the explanations developed in preceding chapters, fits them into a more comprehensive theoretical framework, and tests them using path analysis, which helps researchers understand causal sequences. Democratization is characterized by punctuated equilibrium. Distant historical factors such as geography and demographic characteristics, together with incrementally changing aspects of social and economic development, affect a country’s level of democracy, but only roughly. Institutions and organizations such as a healthy civil society, the rule of law, and institutionalized political parties, tend to reinforce one another and keep each country’s level of electoral democracy close to an equilibrium or set point. However, short-term economic performance, anti-system movements, and opposition campaigns can sometimes disturb the equilibrium, making significant upturns and downturns possible.