(archived announcement, archived report)


A substantial theoretical and empirical economic literature argues that institutions are the primary determinant of long-run economic outcomes. The paper offers a brief introduction to the institutions literature and presents two case studies focusing on sets of major institutional reforms that pulled billions out of extreme poverty: India and China. We discuss the potential areas for reform in a charter city and the widespread success of special economic zones and other projects like charter cities.
Finally, we make an initial effort at quantifying the cost-effectiveness of charter cities. Although the model is relatively simplistic, it allows for direct comparison between GiveWell’s top charities and the Charter Cities Institute. Our modeling suggests that a single charter city could be as effective as Deworm the World, GiveWell’s top charity, within 50 years. Under a set of optimistic but not unreasonable assumptions, a charter city could be over 40 times as effective as Deworm the World.




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A 0.5% boost in annual GDP per capita growth doesn't strike me as a very pessimistic "pessimistic" estimate.

Regulation and Growth looks to be one of the two citations on this (IMO crucial) parameter, but it's just a correlational study of regulations vs growth. The other is China's Special Economic Zones at 30 which looks to be basically a case study.

The Skeptics Guide to Institutions (four parts total) has some background from the skeptical perspective.

(For the record, I think charter cities are interesting. But I also think the domain is extremely complicated and it seems hard to get impact estimates that are even remotely reliable.)

The evidence for the importance of growth is weaker than RCTS by its nature. We're mostly relying on arguments from authority and the eye test. Most economists agree that institutions matter. Shenzhen before and after SEZ status gives an idea of the potential upside. I think most economists would be sympathetic to our high, med, and low estimates of growth.

Very pessimistic is 0, and very optimistic is 5+%, but we bounded our estimates

Yeah, I'm not expecting RCTs. I just think that some attempt at causal inference would be great (e.g. instrumental variable, difference in differences). I also don't think this is a purely procedural complaint (i.e. not just a rote repetition of "Correlation isn't causation!")--I think there are real risks around confounding and external validity.

I'm also fully onboard for the claim that institutions matter. For me, the uncertainty comes in when we ask "Can this intervention change the right institutions with the right direction and magnitude?".

(Also, I don't think it'll be that productive to talk about without bringing more serious evidence to bear but even 0 doesn't strike me as "very pessimistic". There have been plenty of well-intentioned policies with a net negative effect.)


Another beef I have is defining what an institution actually is. Institutionalists in economics often start by defining them as the 'rules of the game', which is vague as it is, but then the term gets extended to mean 'stuff' in the empirical investigations of the impact of institutions.

Most of their analysis looks right.

But they implicitly assume a 100% chance of generating a charter city with better institutions than the host country, given a certain amount of effort on their part. I'd be eagerly donating to them if I believed that. But I expect most countries have political problems which will cause them to reject any charter city effort that comes from outside their country.

I'll estimate a less than 5% chance that any US based charity will catalyze the creation of a charter city in another country, and if such a charter city is created, I'll estimate maybe a 50% chance of it having better institutions than the host country. So I'm dividing their expected impact estimates by about 50 or 100.

Maybe it'd be helpful to build the charter city somewhere like here?

As a precedent, the micronation of Liberland was established in Gornja Siga in 2015, which prior to that was terra nullius.

That a territory is unclaimed by existing sovereign states, however, seems like a poor reason for establishing a charter city there. In a recent conversation with Tyler Cowen, urban planner Alain Bertaud noted that

Cities need a good location. This is a debate I had with Paul Romer when he was interested in charter cities. He had decided that he could create 50 charter cities around the world. And my reaction — maybe I’m wrong — but my reaction is that there are not 50 very good locations for cities around the world. There are not many left... cities like Singapore, Malacca, Mumbai are there for a good reason. And I don’t think there’s that many very good locations.

Also, seems like full-on state-building—which is presumably what would need to happen in terra nullius—is a different (harder?) task than a charter city. As I understand things, charter cities typically rely on many services/institutions of their host polity.

The 100% P(success) is especially unreasonable given the failed attempts by Paul Romer in Honduras and Madagascar.

The intuition behind the cost effectiveness of charter cities is that economic growth compounds, improving standards of living. Therefore, over a sufficiently long time horizon, any growth change will dwarf a level change, like those attributable to deworming or anti-malaria efforts.

I think this framing is misleading. A "growth change" just is repeated (increasing) level changes. The figure on p.14 says that constant 6.5% growth over 50 years will increase GDP per capita to $90k. This is an accounting identity—there's no new information in "6.5% growth over 50 years" that's not in "GDP per capita increased from $4k to $90k over 50 years".

I'd prefer to have the discussion purely in levels, with much more detail on what specifically is increasing GDP. For example: "GDP will increase by $X million over the first five years, driven by increases of $A, $B, $C in sectors 1, 2, 3; there will be N1 new firms and N2 new residents..." If you can assume a growth rate, you can fill in these details. Also, I think the assumption of a constant growth rate over fifty years is too strong.

A 35 percent marginal contribution by CCI to the success of a charter city project is also a conservative estimate. CCI is uniquely positioned to bring together government officials, developers, and other interested parties and offer the expertise to plan a charter city and implement a new legal system.

I'd like to see a lot more discussion of what CCI's contribution is. This sounds like a political slogan.

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