Association for Public Policy Analysis & Management

Over the past half-century, constitutionally mandated political representation of historically disadvantaged groups has become increasing common in democratic societies – most notably, through explicit quotas or political reservations of electoral constituencies for ethnic/indigenous minorities and women.

Research studies indicate significant positive effects of electoral quotas towards disadvantaged groups in public spending (Pande, 2003), public good provision (Chattopadhyay and Duflo, 2004), and poverty alleviation (Chin and Prakash, 2011). Although electoral quotas indicate welfare gains to certain disadvantaged groups over time (Hnatkovska et al., 2012), two specific challenges remain: First, the causal logic and proximal mechanisms through which political representation impacts (social) group outcomes remain unanswered. Second, evaluation of the effects of political reservations on economic activity and market outcomes (including firm activity), from different social groups, are virtually unaddressed.

To address these challenges, this study proposes one causal pathway/mechanism through which political reservations impact (social) group outcomes – political favoritism towards industry-firm activity, both of incumbent firms and new startups (entrepreneurship), in the constituency. The central idea is that constitutionally mandated political representation, i.e.; electoral quotas, improves group economic outcomes through political favoritism towards firms founded by (select) individuals/households from historically disadvantaged groups.