Political Regimes and Informal Social Insurance

• Published date: 01 April 2024
• DOI: http://doi.org/10.1177/00104140221139378
• Author: Santiago López-Cariboni
• Date: 01 April 2024
• Subject Matter: Articles

Article

Comparative Political Studies

2024, Vol. 57(5) 715–748

© The Author(s) 2022

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DOI: 10.1177/00104140221139378

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Political Regimes and

Informal Social Insurance

Santiago López-Cariboni

1



Abstract

Deliberate non-enforcement of the law has been analyzed as a policy tool to

redistribute income. I show that it also responds to political incentives for the

provision of insurance, resembling two well-known dimensions of social policy

design. I analyze data from a large informal program of social insurance in the

world: informal access to electricity service. Transmission and distribution losses

(TDL) in the electricity sector are counter-cyclical because non-compliance and

theft increase during economic crises. By exploiting variation in political insti-

tutions, I capture political motivations for the provision of informal insurance.

Using a panel of 110 developing countries (1970–2014) and instrumental variables

for business cycles and regime type, I show that unlike highly entrenched au-

tocrats, democracies tolerate increases in electricity losses during negative in-

come shocks. This paper expands the literature on “forbearance”showing how

the provision of informal insurance varies across the developing world.

Keywords

enforcement, electricity service, forbearance, political economy, political

regimes

Introduction

It is common wisdom that the state in developing countries cannot protect the

population against poverty and social exclusion. An existing scholarship

1

Universidad de la Rep´

ublica (UdelaR), Montevideo, Uruguay

Corresponding Author:

Santiago López-Cariboni, Universidad de la Rep´

ublica (UdelaR), Constituyente 1502,

Montevideo 11200, Uruguay.

Email: santiago.lopez@cienciassociales.edu.uy

suggests that non-enforcement of the law often results from politically mo-

tivated decisions with the aim of providing imperfect substitutes for social

protection (Feierherd, 2020;Holland, 2015). These contributions emphasize

redistributive motivations by which politicians informally reallocate resources

as a means of avoiding the costs of what otherwise would be a more eco-

nomically costly and politically controversial action of form al redistribution.

Here, I show that non-enforcement is also widely used to provide informal

social insurance in highly volatile economies, resembling two well-known

dimensions of (formal) social policy design. I analyze a large program of

informal transfers in the developing world, namely, informal access to

electricity service.

I exploit existing variation in political institutions as a strategy to capture

incentives for the provision of informal insurance. On the one hand, informal

insurance ameliorates immediate political effects of crises by building po-

litical support and weakening political opponents. On the other hand, in-

formality and violations of property rights have negative long-term effects on

productivity, growth, and potential future revenue. Depending on their time

horizons, incumbents from different political regimes adopt different en-

forcement strategies to solve this trade-off between short-term benef‌its and

long-term costs of informal insurance. I analyze data from 110 developing

countries between 1970 and 2014 and f‌ind that electricity losses are highly

counter-cyclical in democracies but not in autocracies, which supports the

argument that leaders with short time horizons are more likely to provide

insurance informally. The cumulative effect of a 1 percentage point deviation

from the growth trend in democracies is associated with a cumulative effect of

about 10% change in transmission and distribution losses. Among autocra-

cies, only rulers with short time horizons behave similarly to their democratic

incumbent counterparts. Moreover, results are robust after implementing

instrumental variables for both the regime type and the business cycle.

Borrowing from the literature on democratization waves, I instrument for

democracy using spatial data on the year mean of democracy in a country’s

region. As a means of instrumenting for the business cycles, I use the eco-

nomic cycles occurring in a country’s export destinies.

The paper contributes to different literatures. Both selectorate theory

(Bueno De Mesquita et al., 2005) and theories of redistribution (Acemoglu &

Robinson, 2003;Meltzer & Richard, 1981) predict that democracies make a

larger effort in public goods provision. As incumbents are responsive to social

demands, they need to build larger coalitions to secure political support. These

theories f‌ind signif‌icant differences in the formal provision of public goods

and human development across political regimes (Ansell, 2008;Brown &

Hunter, 1999;Stasavage, 2005). This is the f‌irst contribution showing how

political regimes also affect provision of informal social insurance.

716 Comparative Political Studies 57(5)

An important but scant literature has analyzed the politics of electricity

supply in developing countries. Brown and Mobarak (2009) show that de-

mocratization shifts the provision of electricity from the industrial to the

residential sector in developing countries, and Min (2015) shows that de-

mocracies provide more electricity to the poor than do autocracies. Min and

Golden (2014) analyze local elections in India and demonstrate that power

losses (due to irregular access and theft) follow political business cycles.

Consistently, I also f‌ind that politicians manipulate enforcement against non-

compliance with service fees when they have the incentives to do so. Finally,

my contribution is closely linked to the scholarship building on the idea that

one important causal channel for political non-enforcement is the presence of

insurance motivations (Forteza & Noboa, 2021;López-Cariboni, 2019;

Ronconi, 2012).

Linking Political Economy Accounts of Enforcement to

Social Policy Design

Political explanations of enforcement posit that regulatory agencies are

sensitive to the political environment because they act in a “fragile balance

between the interests of economic activity on the one hand and the public

welfare on the other”(Hawkins, 1984). Constraints to deterrence involve the

political unacceptability of negative social and economic outcomes such as

driving f‌irms out of business (Mendeloff, 1979), harming economically

vulnerable employers (Ayres & Braithwaite, 1992), or increasing the level of

unemployment (Moe, 1985). Short (2019) shows that the political economy

literature converges in identifying elected off‌icials as actors who face in-

centives to manipulate enforcement. I compare regularly elected incumbents

with non-elected ones to explain variation in the provision of informal

insurance.

There are supply- and demand-side reasons for the deliberate political

decision of not enforcing of the law (Becker, 1968). Recent scholarship

suggests that non-enforcement often results from politically motivated de-

cisions rather than being solely a function of state capacity (Brollo et al., 2020,

Casaburi and Troiano, 2016,Dewey, 2018,Feierherd, 2020,Holland, 2016).

This literature emphasizes redistributive motivations in which democratic

incumbents informally reallocate resources between different groups. At the

core of these accounts is the idea that incumbents not only decide on lowering

enforcement but also on who is targeted with its benef‌its. While providing an

insightful approach, these prominent explanations—and specially those

oriented to “welfarist”forbearance (Holland, 2015)—are rather static forms of

redistribution. Yet, enforcement may be a “revocable”temporary action

(Dewey et al., 2021,Holland, 2016) or a stable decision with variable and yet

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