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Working Papers

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515/2020 Mirjam Bachli and Teodora TsankovaFree movement of workers and native demand for tertiary education

515/2020 Mirjam Bachli and Teodora Tsankova

We investigate how the introduction of free movement of workers affects enrolment of natives in tertiary education. In a difference-in-differences framework, we exploit a policy change that led to a significant increase in the share of cross-border commuters in local employment in border regions of Switzerland. Our results show a rise in enrolment at Universities of Applied Sciences in affected relative to non-affected regions in the post-reform period but no change in enrolment at traditional universities. Furthermore, we find that enrolment increases in non-STEM fields that build skills less transferable across national borders. This allows for complementaries with foreign workers who are more likely to hold occupations requiring STEM training. Individuals with a labor market oriented education such as vocationally trained respond to the increase in labor market competition because they have employment opportunities and access to tertiary education through Universities of Applied Sciences.

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Research Theme: Political Economy
Affiliation: External Research Associate

514/2020 Antonio Accetturo, Giorgia Barboni, Michele Cascarano and Emilia Garcia-AppendiniCultural proximity and the formation of lending relationships

514/2020 Antonio Accetturo, Giorgia Barboni, Michele Cascarano and Emilia Garcia-Appendini

Cultural proximity in credit markets can facilitate the transmission of subtle signals about the firm's credit quality but can also be a source of favourable treatment from lenders. New research shows that cultural proximity reduces information asymmetries by facilitating the screening of loan applications. Using loan data from South Tyrol, a region hosting two different cultural groups, our research finds a large predominance of lending relationships involving banks and firms of the same culture, particularly among small, young, and opaque firms. Loans to same-culture firms are larger, require less collateral, and default less often than loans to different-culture firms. Cultural proximity appears to reduce information asymmetries by providing a source of soft information that complements the one stemming from close or lengthy relationships.

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Research Theme: Culture and Development
Affiliation: External Research Associate

508/2020 Arun Advani, Felix Koenig, Lorenzo Pessina and Andy SummersImporting inequality: Immigration and the Top 1 percent

508/2020 Arun Advani, Felix Koenig, Lorenzo Pessina and Andy Summers

In this paper we study the contribution of migrants to the rise in UK top incomes. Using administrative data on the universe of UK taxpayers we show migrants are over-represented at the top of the income distribution, with migrants twice as prevalent in the top 0.1% as anywhere in the bottom 97%. These high incomes are predominantly from labour, rather than capital, and migrants are concentrated in only a handful of industries, predominantly finance. Almost all (85%) of the growth in the UK top 1% income share over the past 20 years can be attributed to migration.

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Research Theme: Policy and Data
Affiliation: CAGE

513/2020 Andreas Ferrara and Patrick A. TestaResource blessing? Oil, risk, and religious communities as social insurance in the U.S. South

513/2020 Andreas Ferrara and Patrick A. Testa

Religious communities are important providers of social insurance. We document the development of religious communities in the face of economic volatility associated with natural resource abundance, using variation in major oilfield discoveries in the U.S. South between 1890 and 1990. We find that oil discoveries predict large and persistent increases in church membership. Effects are increasing with oil price volatility and larger for “oil-dependent” counties with small pre-oil populations and manufacturing sectors. Consistent with social insurance, larger religious communities limit spillovers from oil shocks across sectors, smoothing unemployment, while access to credit, private insurance, and public social insurance attenuate effects.

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Research Theme: External Research Associate
Affiliation: Culture and Development

512/2020 José Manuel Aburto, Frederikke Frehr Kristensen and Paul SharpBlack-White disparities during an epidemic: life expectancy and lifespan disparity in the US, 1980-2000

512/2020 José Manuel Aburto, Frederikke Frehr Kristensen and Paul Sharp

Covid-19 has demonstrated again that epidemics can affect minorities more than the population in general. We consider one of the last major epidemics in the United States: HIV/AIDS from ca. 1980-2000. We calculate life expectancy and lifespan disparity (a measure of variance in age at death) for thirty US states, finding noticeable differences both between states and between the black and white communities. Lifespan disparity allows us to examine distributional effects, and, using decomposition methods, we find that for six states lifespan disparity for blacks increased between 1980 and 1990, while life expectancy increased less than for whites. We find that we can attribute most of this to the impact of HIV/AIDS.

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Research Theme: Economic History
Affiliation: External Research Associate

511/2020 Alessandro BelmontePunishing or rallying ‘Round the Flag’? Heterogeneous effects of terrorism in South Tyrol

511/2020 Alessandro Belmonte

This paper studies heterogeneous electoral responses following terrorist attacks. I examine a rich panel data set containing detailed information on the geography of terrorism in South Tyrol, a Northernmost and predominantly German-speaking region of Italy, for a period spanning along 35 years. Exploiting the diverse nature of 337 attacks, I find that the Italian-speaking minority reacted to an increase in exposure to terrorist attacks by punishing the government party at the ballot box and supporting an extreme right-wing party. However, when terror prompted casualties, I find that more exposure was conducive of rally-round-the-flag momenta. I interpret these results in light of recent findings in social psychology on heterogeneous emotional reactions induced by terrorist attacks. My results inform the literature as well as the public debate on the diverse implications of terrorism.

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Research Theme: Political Economy
Affiliation: External Research Associate

510/2020 Adam Nowakowski and Andrew J OswaldDo Europeans care about climate change? An illustration of the importance of data on human feelings

510/2020 Adam Nowakowski and Andrew J Oswald

Economists have proposed a variety of sophisticated climate-change interventions. But do our citizens care enough about climate change to enact such policies? This paper provides evidence that suggests they do not. Two kinds of findings are presented. Using data on 40,000 Europeans from the 2016 European Social Survey, the paper shows that only 5% of people say they are extremely worried about climate change. The cooler European countries express particularly low levels of worry. Using data on 30,000 citizens from the 2019 Eurobarometer Surveys, the paper demonstrates that climate change is viewed as a less important problem than parochial issues such as (i) health and social security, (ii) inflation, (iii) unemployment, and (iv) the economic situation. Other results, from regression equations, are provided. This paper’s conclusions seem to have exceptionally serious implications for our unborn great grandchildren -- and imply that economic policy should now focus on how to alter feelings rather than upon the design of complicated theoretical interventions. An analogy with successful anti-tobacco policy is discussed.

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Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

509/2020 Ludovica GazzeHassles and environmental health screenings: Evidence from lead tests in Illinois

509/2020 Ludovica Gazze

I study the determinants of childhood lead screening using all Illinois birth records (2001- 2014), matched to lead testing records and geocoded housing age data. Housing age measures lead risk, as older houses disproportionally have lead paint. Changes in providers’ availability, inferred from testing data, provide variation in non-monetary costs of testing. Travel costs reduce screening among low- and high-risk households alike. Thus, self-selection based on travel costs does not appear to improve targeting, even though high-risk households are willing to pay $29-389 more than low-risk households for screening. Screening incentives would be cost-effective for reasonable values of lead poisoning externalities.

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Research Theme: Policy
Affiliation: CAGE

507/2020 Matthias Eckardt, Kalle Kappner and Nikolaus WolfCovid-19 across European regions: the role of border controls

507/2020 Matthias Eckardt, Kalle Kappner and Nikolaus Wolf

Attempts to constrain the spread of Covid-19 included the temporal reintroduction of travel restrictions and border controls within the Schengen area. While such restrictions clearly involve costs, their benefits have been disputed. We use a new set of daily regional data of confirmed Covid19 cases from the respective statistical agencies of 18 Western European countries. Our data starts with calendar week 10 (starting 2nd March 2020) and extends to calendar week 17 (ending 26th April 2020), which allows us to test for treatment effects of border controls. Based on PPML methods and a Bayesian INLA approach we find that border controls had a significant effect to limit the pandemic.

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Research Theme: Political Economy
Affiliation: External Research Associate

506/2020 Nina Boberg-Fazlic and Paul SharpIs there a refugee gap? Evidence from over a century of Danish naturalizations

506/2020 Nina Boberg-Fazlic and Paul Sharp

The “refugee gap” in the economic status of refugees relative to other migrants might be due to the experience of being a refugee, or to government policy, which often denies the right to work during lengthy application processes. In Denmark before the Second World War, however, refugees were not treated differently from other migrants, motivating our use of a database of the universe of Danish naturalizations between 1851 and 1960. We consider labor market performance and find that immigrants leaving conflicts fared no worse than other migrants, conditional on other characteristics, within this relatively homogenous sample of those who attained citizenship. Refugees must be provided with the same rights as other migrants if policy aims to ensure their economic success.

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Research Theme: Economic History
Affiliation: External Research Associate

505/2020 Chen Shuo and Debin MaStates and wars: China’s long march towards unity and its consequences, 221 BC – 1911 AD

505/2020 Chen Shuo and Debin Ma

We examine the long-term pattern of state formation and the mythical historical Chinese unity under one single political regime based on the compilation of a large geocoded annual data series of political regimes and incidences of warfare between 221 BC and 1911 AD. By classifying our data sets into two types of regimes - agrarian and nomadic – and three types of warfare– agrarian/nomadic, agrarian/agrarian and internal rebellions – and applying an Autoregressive Distributed Lag (ARDL) model, we find that nomadic-agrarian warfare and internal rebellion strengthens unification but agrarian/agrarian warfare entrenches fragmentation. Our research highlights the combination of China’s precocious ideology of a single unified ruler, environmental circumscription on the easternmost end of Eurasia and persistent agrarian-nomadic warfare as the driving force behind China’s eventual unity. We further discuss the long-run implications of Chinese unity on economic performance in a global context.

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Research Theme: Economic History
Affiliation: External Research Associate

504/2020 Wanyu Chung and Carlo PerroniRules of origin and market power

504/2020 Wanyu Chung and Carlo Perroni

We study how domestic content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model’s predictions: producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods.

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Research Theme: Political Economy
Affiliation: CAGE

503/2020 Robert Akerlof and Luis RayoNarratives and the economics of the family

503/2020 Robert Akerlof and Luis Rayo

We augment Becker’s classic model of the family by assuming that, in addition to caring about consumption, the family wishes to further a subjective story, or narrative, that captures its deeply held values. Our focus is on two stories that in many ways are polar opposites. The first one—the protector narrative—gives rise to a type of traditional family where gender roles are distinct, men and women are pushed towards “separate spheres,” and men are expected to be tough and authoritarian. The second one—the fulfillment narrative—gives rise to a type of modern family where roles are less distinct, family members have greater latitude in their decisions, and marriages are based to a greater extent on romantic love. We derive a rich bundle of behaviors associated with each story, and using survey data, we show that our findings are consistent with a variety of empirical patterns.

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Research Theme: Political Economy
Affiliation: CAGE

502/2020 Nicholas Crafts and Terence C. MillsThe race between population and technology: real wages in the first Industrial Revolution

502/2020 Nicholas Crafts and Terence C. Mills

We investigate a structural model of demographic-economic interactions for England during 1570 to 1850. We estimate that the annual rate of population growth consistent with constant real wages was 0.4 per cent before 1760 but 1.5 per cent thereafter. We find that exogenous shocks increased population growth dramatically in the early decades of the Industrial Revolution. Simulations of our model show that if these demographic shocks had occurred before the Industrial Revolution the impact on real wages would have been catastrophic and that these shocks were largely responsible for very slow growth of real wages during the Industrial Revolution.

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Research Theme: Economic History
Affiliation: CAGE

501/2020 Nicholas CraftsBritish relative economic decline in the aftermath of German unification

501/2020 Nicholas Crafts

From 1871 to 1913, German economic growth was faster than that of the UK. This represented a successful catch-up of the leading European economy but there was still a significant productivity gap at the end of the period. Slower UK growth should be seen as largely unavoidable but there was a serious weakness in the national innovation system. On the whole, the greater openness of the British economy was advantageous and a move to protectionist policies would have been damaging. The expansion of German industrial production and exports only had a small negative impact on UK national income.

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Research Theme: Economic History
Affiliation: CAGE

500/2020 Nicola Mastrorocco and Arianna OrnaghiWho watches the watchmen? Local news and police behavior in the United States

500/2020 Nicola Mastrorocco and Arianna Ornaghi

Does media content influence local institutions? We study this question by looking at how a negative shock to local crime-related news, induced by the acquisition of local TV stations by the Sinclair Broadcast Group, affects U.S. municipal police departments. In particular, we implement a triple differences-in-differences design that exploits the staggered timing of acquisitions 2010-2017, together with cross-sectional variation in whether municipalities are covered by local news at baseline, a proxy for exposure to the shock. First, using a newly collected dataset of 300,000 transcripts of local newscasts, we document that once acquired by Sinclair, TV stations decrease news coverage of local crime. Second, we find that after Sinclair enters a media market, municipalities that were likely to be in the news at baseline experience 8% lower violent crime clearance rates with respect to municipalities that were very rarely in the news in the first place. The main mechanism we propose is that the change in content induces police officers to decrease the effort allocated to clearing violent crimes, due to a decline in the salience of crime as an issue in the public opinion.

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Research Theme: Political Economy
Affiliation: CAGE

499/2020 Robert Akerlof, Anik Ashraf, Rocco Macchiavello and Atonu RabbaniLayoffs and productivity at a Bangladeshi sweater factory

499/2020 Robert Akerlof, Anik Ashraf, Rocco Macchiavello and Atonu Rabbani

Conflicts between management and workers are common and can have significant impacts on productivity. We study how workers in a large Bangladeshi sweater factory responded to management’s decision to lay off about a quarter of the workers following a period of labor unrest. Our main finding is that the mass layoff resulted in a large and persistent reduction in the productivity of surviving workers. Moreover, it is specifically the firing of peers with whom workers had social connections – friends – that matters. We also provide suggestive evidence of deliberate shading of performance by workers in order to punish the factory’s management, and a corresponding deliberate attempt by the factory to win the angry workers back by selectively giving them tasks that are more rewarding. By combining ethnographic and survey data on the socialization process with the factory’s internal records, the paper provides a rare glimpse into the aftermath of an episode of labor unrest. A portrait of the firm emerges as a web of interconnected relational agreements supported by social connections.

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Research Theme: Culture and development
Affiliation: CAGE

498/2020 Daniel Sgroi, Michela Redoano, Federica Liberini, Ben Lockwood, Emanuele Bracco and Francesco PorcelliCultural identity and social capital in Italy

498/2020 Daniel Sgroi, Michela Redoano, Federica Liberini, Ben Lockwood, Emanuele Bracco and Francesco Porcelli

Italy became one nation only relatively recently and as such there remains significant regional variation in trust in government and society (so-called “social capital”) as well as in language and diet. In an experiment conducted across three Italian cities we exploit variation in family background generated through internal migration and make use of novel measures of social capital,language and diet to develop a new index of cultural heritage. Our new index predicts social capital, while self-reported identity does not. The missing link between the past and current identity seems to come through grandparents(especially maternal grandmothers) who have a strong role in developing the cultural identity of their grandchildren.

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Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

497/2020 Christoph Koenig Loose cannons: war veterans and the erosion of democracy in Weimar Germany

497/2020 Christoph Koenig

I study the adverse political effects of WW1 in Weimar Germany. Using novel data on WW1 veterans and an election panel from 1893-1933, I show that former soldiers are associated with a sizeable, persistent and potentially momentous shift in political preferences from left to right. Contrary to historical accounts, this shift cannot be explained by exposure to violence or other polarising post-war events. Rather, I provide suggestive evidence that war participation made veterans highly receptive to Red Menace fears of a Socialist revolution. This alienated veterans from leftwing parties and drove the majority towards inclusive, rightwing parties using anti-left platforms.

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Research Theme: Economic history
Affiliation: External Research Associate

496/2020 Claudia ReiPriests and postmen: historical origins of national identity

496/2020 Claudia Rei

How did historical state and church presence help shape country identity? This paper shows that Portuguese municipalities with more postmen and priests in the 19th century have higher voter turnout in any election today. More postmen (priests) in the 19thcentury however, are associated with lower (higher) turnout in local elections when compared to national elections denoting a stronger sense of national identity (local community). These relationships are robust to geographic and socioeconomic characteristics that could potentially affect voter turnout, suggesting the importance of historical persistence.

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Research Theme: Economic history
Affiliation: CAGE

495/2020 Alexander Klein, Karl Gunnar Persson and Paul SharpPopulism and the first wave of globalization: evidence from the 1892 US Presidential Election

495/2020 Alexander Klein, Karl Gunnar Persson and Paul Sharp

The reasons for the famous agrarian unrest in the United States between 1870 and 1900 remain debated. We argue that they are, at least in part, consistent with a simple economic explanation. Falling transportation costs allowed for the extension of the frontier, where farmers received the world price minus the transaction costs involved in getting their produce to market. Many perceived these costs to be unfairly large, owing to the perceived market power of rail firms and the discriminatory practices of middlemen, with farmers closer to the frontier most affected. Consistent with this, we find that the protest, as measured by vote shares for the Populists in the 1892 Presidential elections, is negatively related to wheat prices, transportation costs, and rail network density.

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Research Theme: Economic History
Affiliation: External Research Associate

494/2020 James Fenske, Bishnupriya Gupta and Song YuanDemographic shocks and women’s labor market participation: evidence from the 1918 influenza pandemic in india

494/2020 James Fenske, Bishnupriya Gupta and Song Yuan

How did the 1918 influenza pandemic affect female labor force participation in India over the short run and the medium run? We use an event-study approach at the district level and four waves of decadal census data in order to answer this question. We find that districts most adversely affected by influenza mortality saw a temporary increase in female labor force participation in 1921, an increase that was concentrated in the service sector. By 1931, this increase had been reversed. We find suggestive evidence that distress labor supply by widows and rising wages help account for these results.

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Research Theme: Economic History
Affiliation: CAGE

493/2020 Felix Chopray , Ingar Haalandz and Christopher RothDo people value more informative news?

493/2020 Felix Chopray , Ingar Haalandz and Christopher Roth

Drawing on representative samples of the U.S. population with more than 15,000 respondents in total, we measure and experimentally vary people’s beliefs about the informativeness of news. Inconsistent with the desire for more information being the dominant motive for people’s news consumption, treated respondents who think that a newspaper is less likely to suppress information reduce their demand for news from this newspaper. Furthermore, treated respondents who think that a news outlet is more likely to make false claims do not reduce their demand for this outlet. These findings strongly suggest that people have other motives to read news that sometimes conflict with their desire for more information. We discuss the implications of our findings for the regulation of media markets.

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Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

492/2020 Andreas Haufler and Carlo PerroniIncentives, globalization, and redistribution

492/2020 Andreas Haufler and Carlo Perroni

We offer a new explanation for why taxes have become less progressive in many countries in parallel with an increase in income inequality. When performance based compensation differentials are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines incentive contracts, lowering effort and raising pre-tax income differentials. Market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimum income tax rate even when individuals are not inter-jurisdictionally mobile.

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Research Theme: Culture and Development
Affiliation: CAGE

491/2020 Anselm Hager, Lukas Hensel, Johannes Hermle and Christopher RothStrategic interdependence in political movements and countermovements

491/2020 Anselm Hager, Lukas Hensel, Johannes Hermle and Christopher Roth

Collective action is the result of the efforts of groups consisting of many individuals. This gives rise to strategic interactions: the decision of an individual to participate in collective action may depend on the efforts of both like-minded and opposing activists. This paper causally studies such strategic interactions in the context of left- and right-wing protests in Germany. In an experiment, we investigated whether randomly varied information on turnout of both like-minded and opposing movements impacts activists’ willingness to protest. In response to information about high turnout of their own group, left-wing activists increased their willingness to protest, consistent with theories of conditional cooperation. In contrast, right-wing activists decreased their willingness to protest, consistent with instrumental accounts and free-riding motives. For both groups, there was no significant reaction to information about turnout of the opposing movement. The results highlight substantial heterogeneity in strategic interactions and motives across the political spectrum.

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Research Theme: Political Economy
Affiliation: CAGE

489/2020 David Gill and Yaroslav RosokhaBeliefs, learning, and personality in the indefinitely repeated prisoner's dilemma

489/2020 David Gill and Yaroslav Rosokha

The indefinitely repeated prisoner’s dilemma (IRPD) captures the trade-off between the short-term payoff from exploiting economic partners and the long-term gain from building successful relationships. We aim to understand more about how people form and use beliefs about others in the IRPD. To do so, we elicit beliefs about the supergame strategies chosen by others. We find that initial beliefs match behavior quite well and that most subjects choose strategies that perform well given their beliefs. Motivated by belief clustering, we use beliefs to estimate a level-k model of boundedly rational thinking. We analyze how beliefs and behavior evolve with experience: beliefs become more accurate over time, and we use beliefs to provide new evidence about the mechanism that underlies learning from experience. Finally, we find that a survey measure of trust predicts cooperative behavior and optimism about others’ cooperation, which helps to explain how trust underpins successful economic exchanges.

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Research Theme: Behavioural economics and wellbeing
Affiliation: External Research Associate

488/2020 Anselm Hager, Lukas Hensel, Johannes Hermle and Christopher RothDoes Party Competition Affect Political Activism?

488/2020 Anselm Hager, Lukas Hensel, Johannes Hermle and Christopher Roth

Does party competition affect political activism? This paper studies the decision of party supporters to join political campaigns. We present a framework that incorporates supporters’ instrumental and expressive motives and illustrates that party competition can either increase or decrease party activism. To distinguish between these competing predictions, we implemented a field experiment with a European party during a national election. In a seemingly unrelated party survey, we randomly assigned 1,417 party supporters to true information that the canvassing activity of the main competitor party was exceptionally high. Using unobtrusive, real-time data on party supporters’ canvassing behavior, we find that treated respondents are 30 percent less likely to go canvassing. To investigate the causal mechanism, we leverage additional survey evidence collected two months after the campaign. Consistent with affective accounts of political activism, we show that increased competition lowered party supporters’ political self-efficacy, which plausibly led them to remain inactive.

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Research Theme: Political Economy
Affiliation: CAGE

487/2020 Pierre Bachas, Lucie Gadenne and Anders JensenInformality, Consumption Taxes and Redistribution

487/2020 Pierre Bachas, Lucie Gadenne and Anders Jensen

Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.

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Research Theme: Culture and Development
Affiliation: CAGE

486/2020 Thiemo Fetzer and Shizhuo WangMeasuring the Regional Economic Cost of Brexit: Evidence up to 2019

486/2020 Thiemo Fetzer and Shizhuo Wang

The United Kingdom (UK) reported record employment levels following its vote to Leave the European Union (EU), leading to many pundits discarding the dire pre-Brexit vote impact assessments as part of “project fear.” This paper studies the cost of the Brexit-vote to date across UK regions finding significant evidence suggesting that the economic costs of the Brexit-vote are both sizeable and far from evenly distributed. Among 382 districts, at least 168 districts appear to be Brexit-vote losers, having lost, on average 8.54 percentage points of output in 2018 compared to their respective synthetic controls. The Brexit-vote costs have increased in districts that: a) supported Leave in 2016; b) have a large manufacturing sector; c) have a large share of low skilled workers. The Brexit- vote induced economic divergence across regions is already exacerbating the regional economic inequalities that the 2016 EU referendum vote made apparent. Indirect evidence further suggests that firms may, amidst the significant (trade) policy uncertainty, have shifted away from capital to labour in the short- term given that Brexit has, to date, not led to changes in market access. The resulting short-term employment- and payroll growth post-2016 is not supported by productivity increases in most parts of the UK. This sets up the possibility for significant labor market adjustments once Brexit becomes a de-facto reality. Further, there is some evidence suggesting that COVID19 may exacerbate the regional economic impact of the Brexit-vote to date.

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Research Theme: Political Economy
Affiliation: CAGE

485/2020 Vimal Balasubramaniam, Apurav Yash and Bhatiya Sabyasachi DasSynchronised Elections, Voter Behavior and Governance Outcomes: Evidence from India

485/2020 Vimal Balasubramaniam, Apurav Yash and Bhatiya Sabyasachi Das

We examine whether holding national and state elections simultaneously or sequentially affects voter decisions and consequently, electoral and economic outcomes in India. Synchronized elections increase the likelihood of the same political party winning constituencies in both tiers by 21%. It reduces split-ticket voting, increases the salience of party among voters and shifts voters’ priority to state issues, without significantly affecting turnout and winning margin. A model of behaviorally constrained voters with costly information acquisition best explains our results. Finally, synchronization results in insignificant economic gains. Our findings have implications for the design of elections to multiple tiers of government.

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Research Theme: Culture and Development
Affiliation: External Research Associate

484/2020 Ingar Haaland, Christopher Roth and Johannes WohlfartDesigning Information Provision Experiments

484/2020 Ingar Haaland, Christopher Roth and Johannes Wohlfart

We review methodological questions relevant for the design of information provision experiments. We first provide a literature review of major areas in which information provision experiments are applied. We then outline key measurement challenges and design recommendations that may be of help for practitioners planning to conduct an information experiment. We discuss the measurement of subjective beliefs, including the role of incentives and ways to reduce measurement error. We also discuss the design of the information intervention, as well as the measurement of belief updating. Moreover, we describe ways to mitigate potential experimenter demand effects and numerical anchoring arising from the information treatment. Finally, we discuss typical effect sizes in information experiments.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

483/2020 Guido Alfani, M. Di Tullio and M. FochesatoThe determinants of wealth inequality in the Republic of Venice (1400-1800)

483/2020 Guido Alfani, M. Di Tullio and M. Fochesato

This article analyses wealth inequality in the territories of the Republic of Venice in mainland Italy during 1400-1800. The availability of a particularly large database of homogeneous local inequality measurements allows us to produce the most in-depth study of the determinants of inequality at the local level available so far for any preindustrial society. First, we explore the ability of economic development, population and the intensity of regressive taxation to explain overall inequality trends in the long run, arguing for a particularly strong impact of regressive taxation. Then, to explain inequality variation between communities, we introduce a full set of geo-morphological variables. Finally we explore the impact of the terrible 1630 plague, which killed 40% of the inhabitants of this area. Although the plague itself had only a limited egalitarian impact (if any), it was able to determine a structural break in the way in which some key variables affected inequality.

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Research Theme: Economic History
Affiliation: External Research Associate

482/2020 Emma Duchini, Stefania Simion and Arthur TurrellPay Transparency and Cracks in the Glass Ceiling

482/2020 Emma Duchini, Stefania Simion and Arthur Turrell

Each year since 2018, more than 10,000 UK firms have been required to publicly disclose their gender pay gap and gender composition. This paper studies how this transparency policy affects the occupational outcomes and wages of male and female workers. Theoretically, pay transparency represents an information shock that alters the bargaining power of male and female employees vis-a-vis the firm in an asymmetric way. As women are currently underpaid, ` this shock may improve women’s relative outcomes. We test these theoretical predictions using a difference-in-difference strategy that exploits the variation in the UK mandate across firm size and time. Our results show that pay transparency increases the probability that women are hired in above-median-wage occupations by 5 percent compared to the pre-policy mean. Additionally, it leads to a 2.8 percent decrease in male real hourly pay in treated firms compared to control ones. Combining the difference-in-difference strategy with a text analysis of job listings, we also find suggestive evidence that treated firms in industries with a high gender pay gap become more likely to post wage information than firms in the control group.

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Research Theme: CAGE
Affiliation:

481/2020 Leonardo Bursztyn, Akaash Rao, Christopher Roth and David Yanagizawa-DrottMisinformation during a Pandemic

481/2020 Leonardo Bursztyn, Akaash Rao, Christopher Roth and David Yanagizawa-Drott

We study the effects of COVID-19 coverage early in the pandemic by the two most popular cable news shows in the US, both on Fox News, on health outcomes. We document large differences in content between the shows and in cautious behavior among viewers. Through both a selection-on-observables strategy and a novel instrumental variable approach, we find that areas with greater exposure to the show downplaying the threat of COVID-19 experienced a greater number of cases and deaths. We assess magnitudes through an epidemiological model highlighting the role of externalities and provide evidence that misinformation is a key underlying mechanism.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

480/2020 Sascha O. Becker, Jared Rubin and Ludger WoessmannReligion in Economic History: A Survey

480/2020 Sascha O. Becker, Jared Rubin and Ludger Woessmann

This chapter surveys the recent social science literature on religion in economic history, covering both socioeconomic causes and consequences of religion. Following the rapidly growing literature, it focuses on the three main monotheisms—Judaism, Christianity, and Islam—and on the period up to WWII. Works on Judaism address Jewish occupational specialization, human capital, emancipation, and the causes and consequences of Jewish persecution. One set of papers on Christianity studies the role of the Catholic Church in European economic history since the medieval period. Taking advantage of newly digitized data and advanced econometric techniques, the voluminous literature on the Protestant Reformation studies its socioeconomic causes as well as its consequences for human capital, secularization, political change, technology diffusion, and social outcomes. Works on missionaries show that early access to Christian missions still has political, educational, and economic consequences in present-day Africa, Asia, and Latin America. Much of the economics of Islam focuses on the role that Islam and Islamic institutions played in political-economy outcomes and in the “long divergence” between the Middle East and Western Europe. Finally, cross-country analyses seek to understand the broader determinants of religious practice and its various effects across the world. We highlight three general insights that emerge from this literature. First, the monotheistic character of the Abrahamic religions facilitated a close historical interconnection of religion with political power and conflict. Second, human capital often played a leading role in the interconnection between religion and economic history. Third, many socioeconomic factors matter in the historical development of religions.

Published: The Handbook of Historical Economics (forthcoming)
DOI: ISBN: 9780128158746
Research Theme: Economic History
Affiliation: CAGE

479/2020 Nina Boberg-Fazlic, Markus Lampe, Maja Uhre Pedersen and Paul SharpPandemics and Protectionism: Evidence from the “Spanish” flu

479/2020 Nina Boberg-Fazlic, Markus Lampe, Maja Uhre Pedersen and Paul Sharp

The impact of COVID-19 on recent tendencies towards international isolationism has been much speculated on but remains to be seen. We suggest that valuable evidence can be gleaned from the “Spanish” flu of 1918-20. It is well-known that the world fell into a protectionist spiral following the First World War, but scholars have almost exclusively ignored the impact of the pandemic. We employ a difference-in-differences strategy on data for Europe and find that excess deaths had a significant impact on trade policy, independent of the war. A one standard deviation increase in excess deaths during the outbreak implied 0.022 percentage points higher tariffs subsequently, corresponding to an increase of one third of a standard deviation in tariffs. Health policy should aim to avoid the experience of the interwar period and consider the international macroeconomic impact of measures (not) taken.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

478/2020 Guido AlfaniPandemics and asymmetric shocks: Evidence from the history of plague in Europe and the Mediterranean

478/2020 Guido Alfani

The history of plague suggests that severe pandemics can have extremely important and potentially permanent asymmetric economic consequences. However, these consequences depend upon the initial conditions and could not be foretold a priori. To support this view, this short article illustrates the ability of major plagues to cause asymmetric shocks. The Black Death might have been at the origin of the Great Divergence between western Europe and East Asia, but also within Europe it had quite heterogeneous consequences. The last great European plagues of the seventeenth century favoured the rise of North Europe to the detriment of the South. Additionally, within Italy, they had a differential impact allowing for the rise of the Sabaudian State and contributing to the decline of the Republic of Venice. The article argues that the implication for today societies facing Covid-19, is that given that the final demographic and economic consequences of this pandemic are impossible to predict, collective answers to the crisis, possibly coordinated by the EU, are highly advisable.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

477/2020 Jordi GalÌ and Thijs van RensThe Vanishing Procyclicality of Labour Productivity

477/2020 Jordi GalÌ and Thijs van Rens

We document two changes in postwar US macroeconomic dynamics: the procyclicality of labour productivity vanished, and the relative volatility of employment rose. We propose an explanation for these changes that is based on reduced hiring frictions due to improvements in information about the quality of job matches and the resulting decline in turnover. We develop a simple model with hiring frictions and variable e§ort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/ueaa065
Research Theme: Economic History
Affiliation: CAGE

476/2020 Debraj Ray and S. SubramanianIndia's Lockdown: An Interim Report

476/2020 Debraj Ray and S. Subramanian

Our goal is to provide an interim report on the Indian lockdown provoked by the covid19 pandemic. While our main themes — ranging from the philosophy of lockdown to the provision of relief measures — transcend the Indian case, our context is deeply India-specific in several senses that we hope will become clear through the article. A fundamental theme that recurs throughout our writing is the enormous visibility of covid-19 deaths worldwide, now that sensitivities and anxieties regarding the pandemic have been honed to an extreme sharpness. Governments everywhere are propelled to respect this visibility, developing countries perhaps even more so than their developed counterparts. In advanced economies, the cost of achieving this reduction in visible deaths is “merely” a dramatic reduction in overall economic activity, coupled with a farreaching relief package to partly compensate those who bear such losses. But for India, a developing country with great sectoral and occupational vulnerabilities, this dramatic reduction is more than economics: it means lives lost. These lost lives, through violence, starvation, indebtedness and extreme stress, both psychological and physiological, are invisible, in the sense that they are—and will continue to be—diffuse in space, time, cause and category. They will blend into the surrounding landscape; they are not news, though the intrepid statistician or economist will pick them up as the months go by. It is this conjunction of visibility and invisibility that drives the Indian response. The lockdown meets all international standards so far; the relief package none.

Published: Indian Economic Review
DOI: https://doi.org/10.1007/s41775-020-00094-2
Research Theme: Culture and Development
Affiliation: CAGE

465/2020 Arun Advani and Andy SummersCapital Gains and UK Inequality

465/2020 Arun Advani and Andy Summers

Aggregate taxable capital gains in UK have tripled in past decade. Using confidential administrative data on the universe of UK taxpayers, we show that including gains changes the picture of UK inequality over the past two decades. These taxable gains are largely repackaged income, so their exclusion biases the picture of inequality. Including them changes who is at the top of the distribution, adding more business owners and older people. The share of income plus gains (both pre- and post-tax) going to the top 1% is 3pp higher than for income only, and this gap has been steadily rising.

Published:
DOI:
Research Theme: CAGE
Affiliation:

475/2020 David Ronayne, Daniel Sgroi, Anthony TuckwellEvaluating the Sunk Cost Effect

475/2020 David Ronayne, Daniel Sgroi, Anthony Tuckwell

We provide experimental evidence of behaviour consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; yet 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects' capacity for cognitive reflection is a significant determinant of sunk cost behavior. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behavior, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the “SCE-8”, which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

474/2020 Nicholas Crafts Slow Real Wage Growth during the Industrial Revolution: Productivity Paradox or Pro-Rich Growth?

474/2020 Nicholas Crafts

I examine the implications of technological change for productivity, real wages and factor shares during the industrial revolution using recently available data. This shows that real GDP per worker grew faster than real consumption earnings but labour’s share of national income changed little as real product wages grew at a similar rate to labour productivity in the medium term. The period saw modest TFP growth which limited the growth both of real wages and of labour productivity. Economists looking for an historical example of rapid labour-saving technological progress having a seriously adverse impact on labour’s share must look elsewhere.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

473/2020 Lena Hensvik, Thomas Le Barbanchon, Roland RathelotJob Search during the COVID-19 Crisis

473/2020 Lena Hensvik, Thomas Le Barbanchon, Roland Rathelot

This paper measures the job-search responses to the COVID-19 pandemic using realtime data on vacancy postings and ad views on Sweden’s largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts.

Published:
DOI:
Research Theme: CAGE
Affiliation:

472/2020 Thiemo Fetzer et. al. Global Behaviours and Perceptions at the Onset of the COVID-19 Pandemic

472/2020 Thiemo Fetzer et. al.

We conducted a large-scale survey covering 58 countries and over 100,000 respondents between late March and early April 2020 to study beliefs and attitudes towards citizens’ and governments’ responses to the COVID-19 pandemic. Most respondents reacted strongly to the crisis: they report engaging in social distancing and hygiene behaviors, and believe that strong policy measures, such as shop closures and curfews, are necessary. They also believe that their government and their country’s citizens are not doing enough and underestimate the degree to which others in their country support strong behavioral and policy responses to the pandemic. The perception of a weak government and public response is associated with higher levels of worries and depression. Using both cross-country panel data and an event-study, we additionally show that strong government reactions correct misperceptions, and reduce worries and depression. Our findings highlight that policy-makers not only need to consider how their decisions affect the spread of COVID-19, but also how such choices influence the mental health of their population.

Published:
DOI:
Research Theme: Political economy
Affiliation: CAGE

471/2020 Eric MelanderTransportation Technology, Individual Mobility and Social Mobilisation

471/2020 Eric Melander

How do reductions in interaction costs shape the diffusion of social movements? In this paper, I use a natural experiment from Swedish history to answer this question. During the thirty-year period 1881-1910, Swedish society underwent two transformative developments: the large-scale roll-out of a national railway network and the nascence of grassroots social movements which came to dominate economic, social and political spheres well into the twentieth century. Using exogenous variation in railway access arising from initial plans for the network, I show that well-connected municipalities were more likely to host a local movement and subsequently saw more rapid membership growth and a greater number of distinct organisations. The mobility of individuals is key: results are driven by passenger arrivals into connected municipalities, not freight arrivals. I implement a market access framework to show that, by reducing least-cost distances between municipalities, railways intensified the influence exerted by neighbouring concentrations of membership, thereby enabling social movement spread.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

470/2020 Nina Boberg-Fazli´c, Markus Lampe, Pablo Martinelli Lasheras and Paul SharpWinners and Losers from Enclosure: Evidence from Danish Land Inequality 1682- 1895

470/2020 Nina Boberg-Fazli´c, Markus Lampe, Pablo Martinelli Lasheras and Paul Sharp

Institutional changes that increase efficiency regularly raise concerns about their distributional consequences, i.e. who the winners and losers are. We evaluate the distributional consequences of a fundamental transition that all agricultural societies underwent on their way to modernisation: the transition from traditional land rights to an institutional framework of unified and efficient property rights that laid the basis for increased agricultural productivity and population and income growth. For the case of Denmark, where this transition happened over a short period between 1780 and 1810, we show that enclosure of common land and open fields and unification of property rights increased agricultural efficiency, but at the cost of higher inequality in landholdings. This rise in rural inequality was the consequence of population growth, while access to land was effectively restricted. Thus, an almost constant number of family farmers gained from modernisation that allowed them to use the land more efficiently, while the rest of the growing population made up a growing number of smallholders and landless labourers.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

469/2020 Sascha O. Becker and Francesco CinnirellaPrussia Disaggregated: The Demography of its Universe of Localities in 1871

469/2020 Sascha O. Becker and Francesco Cinnirella

We provide, for the first time, a detailed and comprehensive overview of the demography of more than 50,000 towns, villages, and manors in 1871 Prussia. We study religion, literacy, fertility, and group segregation by location type (town, village, and manor). We find that Jews live predominantly in towns. Villages and manors are substantially segregated by denomination, whereas towns are less segregated. Yet, we find relatively lower levels of segregation by literacy. Regression analyses with county-fixed effects show that a larger share of Protestants is associated with higher literacy rates across all location types. A larger share of Jews relative to Catholics is not significantly associated with higher literacy in towns, but it is in villages and manors. Finally, a larger share of Jews is associated with lower fertility in towns, which is not explained by differences in literacy.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

468/2020 Mark HarrisonEconomic Warfare in Twentieth- Century History and strategy

468/2020 Mark Harrison

In two world wars, both sides committed substantial resources to economic warfare. Before the event, influential thinkers believed that the threat of blockade (and later of bombing) would deter aggression. When war broke out, they hoped that economic action might bring the war to a close without the need for a conclusive military struggle. Why were they disappointed, and what was the true relationship between economic warfare and combat between military forces? The answer to this question depends on the effects of economic warfare, which can be understood only after considering the adversary’s adaptation. When the full range of adaptations is considered, it becomes clear that economic warfare and combat were usually strategic complements; they acted together and did not substitute for each other. The paper examines this question both in breadth and more narrowly, focusing on the Allied air campaign against Germany in World War II. There are implications for history and policy.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

467/2020 Monica Giovanniello and Carlo PerroniClimate Change and Pandemics: On the Timing of Interventions to Preserve a Global Common

467/2020 Monica Giovanniello and Carlo Perroni

We characterize timing choices in investments towards the conservation of a global common and derive implications for interventions to contain the spread of a contagious disease.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

466/2020 Lena Hensvik, Thomas Le Barbanchon and Roland RathelotWhich jobs are done from home? Evidence from the American Time Use Survey

466/2020 Lena Hensvik, Thomas Le Barbanchon and Roland Rathelot

Which jobs are more likely to be affected by mobility restrictions due to the Covid-19 pandemic? This paper uses American Time Use Survey data to measure the share of the work hours that are spent at home for different job categories. We compute and provide home-working shares by occupation (US census classification SOC and international ISCO classification) and by industry (US census classification NAICS and international ISIC classification).

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

464/2020 Neha BoseAttitude towards Immigrants: Evidence from U.S. Congressional Speeches

464/2020 Neha Bose

Immigration and attitudes towards immigration have been key features in economic development and political debate for decades. It can be hard to disentangle true beliefs about immigrants even where we have seemingly strong evidence such as the voting records of politicians. This paper builds an "immigration corpus" consisting of 24,351 U.S. congressional speeches relevant to immigration issues between 1990-2015. The corpus is used to form two distinct measures of attitude towards immigrants - one based on sentiment (or valence) and one based on the concreteness of language. The lexical measures, particularly sentiment, show systematic variation over time and across states in a manner consistent with the history and experiences of immigrants in the USA. The paper also computes a speaker specific measure of sentiment towards immigrants which is found to be a significant positive predictor of voting behaviour with respect to immigration related bills. Applying a Latent Dirichlet Allocation (LDA) topic modelling algorithm provides further insight into how different topics (such as border security or national security) have risen and fallen in importance over time in the face of key events such as 9/11.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

463/2020 Verena Fetscher Equalizing Incomes in the Future: Why Structural Differences in Social Insurance Matter for Redistribution Preferences

463/2020 Verena Fetscher

Why is support for income redistribution among the rich higher in some Western European welfare states than in others? The argument I propose builds on structural differences in the social insurance design. Flat-rate systems provide social benefits in equal amounts to everyone in need, while earnings-related systems provide benefits in relation to previous earnings. These differences in the configuration of the welfare state historically go back to Bismarck and Beveridge and have implications for questions of distributive justice and fairness. If individual incomes have fair and unfair components, earnings-related systems maintain both components during periods of economic hardship, while at-rate systems equalize fair and unfair income differences. With a combination of observational and experimental data, I show that average support for redistribution among the better-off is higher in earnings-related systems and participants in a laboratory experiment increase transfer shares in allocation problems which maintain given endowment differences.

Published:
DOI:
Research Theme: Political Economy
Affiliation: External Research Associate

462/2020 Elliott Ash, Daniel L. Chen and Arianna OrnaghiGender Attitudes in the Judiciary: Evidence from U.S. Circuit Courts

462/2020 Elliott Ash, Daniel L. Chen and Arianna Ornaghi

Do gender attitudes influence interactions with female judges in U.S. Circuit Courts? In this paper, we propose a novel judge-specific measure of gender attitudes based on use of genderstereotyped language in the judge’s authored opinions. Exploiting quasi-random assignment of judges to cases and conditioning on judges’ characteristics, we validate the measure showing that slanted judges vote more conservatively in gender-related cases. Slant influences interactions with female colleagues: slanted judges are more likely to reverse lower-court decisions if the lower-court judge is a woman than a man, are less likely to assign opinions to female judges, and cite fewer female-authored opinions.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

461/2020 Sascha O. Becker, Lukas Mergele, and Ludger WoessmannThe Separation and Reunification of Germany: Rethinking a Natural Experiment Interpretation of the Enduring Effects of Communism

461/2020 Sascha O. Becker, Lukas Mergele, and Ludger Woessmann

German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles.

Published: Journal of Economic Perspectives
DOI: https://www.aeaweb.org/articles?id=10.1257/jep.34.2.143
Research Theme: Economic History
Affiliation: CAGE

460/2020 Clément Imbert, Marlon SerorYanos Zylberberg and Yifan Zhang Migrants and Firms: Evidence from China

460/2020 Clément Imbert, Marlon SerorYanos Zylberberg and Yifan Zhang

How does rural-urban migration shape urban production in developing countries? We use longitudinal data on Chinese manufacturing firms between 2001 and 2006, and exploit exogenous variation in rural-urban migration induced by agricultural price shocks for identification. We find that, when immigration increases, manufacturing production becomes more labor-intensive in the short run. In the longer run, firms innovate less, move away from capital-intensive technologies, and adopt final products that use low-skilled labor more intensively. We develop a model with endogenous technological choice, which rationalizes these findings, and we estimate the effect of migration on factor productivity and factor allocation across firms.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

459/2020 Clément Imbert and John PappCosts and Benefits of Rural-Urban Migration: Evidence from India

459/2020 Clément Imbert and John Papp

This paper provides new evidence on rural-urban migration decisions in developing countries. Using original survey data from rural India, we show that seasonal migrants prefer to earn 35 percent less on local public works rather than incur the cost of migrating. Structural estimates suggest that the fixed cost of migration is small, and can be entirely explained by travel costs and income risk. In contrast, the flow cost of migration is very high. We argue that higher living costs in the city explain only a small part of the flow cost of migration, and that most of it is non-monetary.

Published: Journal of Development Economics
DOI: https://doi.org/10.1016/j.jdeveco.2020.102473
Research Theme: Culture and Development
Affiliation: CAGE

458/2020 Jan-Emmanuel De Neve, Clement Imbert, Johannes Spinnewijn, Teodora Tsankova and Maarten LutsHow to Improve Tax Compliance? Evidence from Population-wide Experiments in Belgium

458/2020 Jan-Emmanuel De Neve, Clement Imbert, Johannes Spinnewijn, Teodora Tsankova and Maarten Luts

We study the impact of simplification, deterrence and tax morale on tax compliance. We ran five natural field experiments varying the communication of the tax administration with the universe of income taxpayers in Belgium throughout the tax process. A consistent picture emerges across experiments: (i) simplifying communication substantially increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective, and often backres. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. We find that simplification is far more cost-effective, allowing for substantial savings on enforcement costs.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

457/2020 Robert Akerlof, Hongyi Li, and Jonathan YeoLords and Vassals: Power, Patronage, and the Emergence of Inequality

457/2020 Robert Akerlof, Hongyi Li, and Jonathan Yeo

This paper uses a laboratory experiment to study competitions for power — and the role of patronage in such competitions. We construct and analyze a new game — the “chicken-and-egg game” — in which chickens correspond to positions of power and eggs are the game’s currency. We find that power tends to accumulate,through a “power begets power” dynamic, in the hands of “lords.” Other subjects behave like their vassals in the sense that they take lords’ handouts rather than compete against them. We observe substantial wealth inequality as well as power inequality. There are also striking gender differences in outcomes — particularly in rates of lordship. In a second treatment, where we eliminate patronage by knocking out the ability to transfer eggs, inequality is vastly reduced and the “power begets power” dynamic disappears.

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Research Theme: Political Economy
Affiliation: CAGE

456/2020 Marta SantamariaReshaping Infrastructure: Evidence from the division of Germany

456/2020 Marta Santamaria

This paper quantifies the gains from infrastructure investments and shows that reshaping the highway network after a large economic shock, the division of Germany, had positive welfare and income effects. To address the endogeneity between infrastructure and economic outcomes, I develop a multi-region quantitative trade model where infrastructure is chosen by the government to maximise welfare. I calibrate the model to the prewar German economy and estimate the key structural parameter of the model using the prewar Highway Plan. I exploit the division of Germany, a large-scale exogenous shock to economic fundamentals, to show that the model can predict changes in highway construction after the division. Using newly collected data, I document that half of the new highway investments deviated from the prewar Highway Plan. I fin that the reallocation of these investments (one-third of the network) increased real income by 0.69% to 2% each year, compared to the construction of the original prewar Plan. Finally, I fin a large cost of path-dependence: the ability to reshape the full network in anticipation of the division could have increased real income by an additional 1.85%.

Published:
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Research Theme: Economic History
Affiliation: CAGE

455/2020 Mario Intini and Michael WatersonDo British wind generators behave strategically in response to the Western Link interconnector?

455/2020 Mario Intini and Michael Waterson

In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings.

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Research Theme: Political Economy
Affiliation: CAGE

454/2020 Abhijit Banerjee, Amy Finkelstein, Rema Hanna, Benjamin Olken, Arianna Ornaghi and Sudarno SumartoSubsidies and the Dynamics of Selection: Experimental Evidence from Indonesia's National Health

454/2020 Abhijit Banerjee, Amy Finkelstein, Rema Hanna, Benjamin Olken, Arianna Ornaghi and Sudarno Sumarto

How can developing countries increase health insurance? We experimentally assessed three approaches that simple theory suggests could increase coverage and potentially reduce adverse selection: temporary price subsidies, registration assistance, and information. Temporary subsidies attracted lower-cost enrollees, in part by reducing strategic coverage timing. While subsidies were active, coverage increased more than eightfold, at no higher unit cost to the government; after subsidies ended, coverage remained twice as high, again at no higher cost. However, subsidies are not sufficient to achieve universal coverage: the most intensive intervention – a full one-year subsidy combined with registration assistance – resulted in only 30 percent enrollment.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

453/2020 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo PerroniSecession with Natural Resources

453/2020 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo Perroni

We look at the formation of new Indian states in 2001 to uncover the effects of political secession on the comparative economic performance of natural resource rich and natural resource poor areas. Resource rich constituencies fared comparatively worse within new states that inherited a relatively larger proportion of natural resources. We argue that these patterns reflect how political reorganisation affected the quality of state governance of natural resources. We describe a model of collusion between state politicians and resource rent recipients that can account for the relationships we see in the data between natural resource abundance and post-breakup local outcomes.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/ueaa033
Research Theme: Culture and Development
Affiliation: CAGE

452/2020 James Fenske, Alessandro Castagnetti and Karmini SharmaAttribution Bias by Gender: Evidence from a Laboratory Experiment

452/2020 James Fenske, Alessandro Castagnetti and Karmini Sharma

In many settings, economic outcomes depend on the competence and effort of the agents involved, and also on luck. When principals assess agents' performance they can suffer from attribution bias by gender: male agents may be assessed more favorably than female agents because males will be rewarded for good luck, while women are punished for bad luck. We conduct a laboratory experiment to test whether principals judge agents'outcomes differently by gender. Agents perform tasks for the principals and the realized outcomes depend on both the agents' performance and luck. Principals then assess agents'performance and decide what to pay the agents. Our experimental results do not show evidence consistent with attribution bias by gender. While principals' payments and beliefs about agent performance are heavily influenced by realized outcomes, they do not depend on the gender of the agent. We find suggestive evidence that the interaction between the gender of the principal and the agent plays a role. In particular, principals are more generous to agents of the opposite gender.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

451/2020 Graciela Chichilnisky, Peter J. Hammond and Nicholas SternFundamental Utilitarianism and Intergenerational Equity with Extinction Discounting

451/2020 Graciela Chichilnisky, Peter J. Hammond and Nicholas Stern

Ramsey famously condemned discounting "future enjoyments"as "ethically indefensible". Suppes enunciated an equity criterion which,when social choice is utilitarian, implies giving equal weight to all individuals' utilities. By contrast, Arrow (1999a,b) accepted, perhaps reluctantly,what he called Koopmans' (1960) "strong argument" implying that no equitable preference ordering exists for a sufficiently unrestricted domain of infinite utility streams. Here we derive an equitable utilitarian objective for a finite population based on a version of the Vickrey-Harsanyi original position, where there is an equal probability of becoming each person. Fora potentially infinite population facing an exogenous stochastic process of extinction, an equitable extinction biased original position requires equal conditional probabilities, given that the individual's generation survives the extinction process. Such a position is well-defined if and only if survival probabilities decline fast enough for the expected total number of individuals who can ever live to be finite. Then, provided that each individual's utility is bounded both above and below, maximizing expected "extinction discounted" total utility | as advocated, inter alia, by the Stern Review on climate change - provides a coherent and dynamically consistent equitable objective, even when the population size of each generation can be chosen.

Published: Social Choice and Welfare
DOI: https://doi.org/10.1007/s00355-019-01236-z
Research Theme: Political Economy
Affiliation: CAGE

450/2019 Laura Derksen, Catherine Michaud Leclerc and Pedro CL SouzaSearching for Answers: The Impact of Student Access to Wikipedia

450/2019 Laura Derksen, Catherine Michaud Leclerc and Pedro CL Souza

Young people across the developing world are gaining access to the internet. Can schools introduce the internet in a way that promotes reading and learning? We provide Wikipedia access to a random subset of secondary school students in Malawian boarding schools. This setting is unique: students otherwise have limited study resources and no internet access. Students used Wikipedia intensively, and found it accessible and trustworthy. They developed a preference for Wikipedia over other online sources, including for information about news events and safe sex. We find a large impact on English final exam scores (.11 standard deviations), especially for low achievers (.21 standard deviations). Students also used Wikipedia to study for Biology, and exam scores increased for low achievers (.17 standard deviations). Our results imply that Wikipedia is a source of simple and engaging reading material, and can improve English language skills. It is also a source of accessible study material that increases study time productivity for low achievers.

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Research Theme: Culture and Development
Affiliation: CAGE

449/2019 Timothy Besley, Thiemo Fetzer and Hannes MuellerTerror and Tourism: The Economic Consequences of Media Coverage

449/2019 Timothy Besley, Thiemo Fetzer and Hannes Mueller

This paper studies the economic effects of news-coverage of violent events. To do so, we combine monthly aggregated and anonymized credit card data on tourism spending from 114 origin countries and 5 tourist destinations (Turkey,Egypt, Tunisia, Israel and Morocco) with a large corpus of more than 446 thousand newspaper articles covering news on the 5 destination countries from a subset of 57 tourist origin countries. We document that violent events in a destination are followed by sharp spikes in negative reporting at origin and contractions in tourist activity. Media coverage of violence has a large independent effect on tourists pending beyond what can be accounted for by controlling for the incidence of violence. We develop a model in which tourist beliefs, actual violence and media reporting are modelled together. This model allows us to quantify the effect of violent events and reporting.

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Research Theme: Political Economy
Affiliation: CAGE

448/2019 Eduardo Fe, David Gill and Victoria ProwseCognitive skills, strategic sophistication, and life outcomes

448/2019 Eduardo Fe, David Gill and Victoria Prowse

We investigate how childhood cognitive skills affect strategic sophistication and adult outcomes. In particular, we emphasize the importance of childhood theory-of-mind as a cognitive skill. We collected experimental data from more than seven hundred children in a variety of strategic interactions. First, we find that theory-of-mind ability and cognitive ability both predict level-k behavior. Second, older children respond to information about the cognitive ability of their opponent, which provides support for the emergence of a sophisticated strategic theory-of-mind. Third, theory-of-mind and age strongly predict whether children respond to intentions in a gift-exchange game, while cognitive ability has no influence, suggesting that different measures of cognitive skill correspond to different cognitive processes in strategic situations that involve understanding intentions. Using the ALSPAC birth-cohort study, we find that childhood theory-of-mind and cognitive ability are both associated with enhanced adult social skills, higher educational participation, better educational attainment, and lower fertility in young adulthood. Finally, we provide evidence that school spending improves theory-of-mind in childhood.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

447/2019 Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas SampsonExchange Rates and Consumer Prices: Evidence from Brexit

447/2019 Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas Sampson

This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum,inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.

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Research Theme: Political Economy
Affiliation: CAGE

446/2019 Natalie Chen and Luciana JuvenalMarkups, Quality, and Trade Costs

446/2019 Natalie Chen and Luciana Juvenal

We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

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Research Theme: Political Economy
Affiliation: CAGE

445/2019 Tirthankar RoyClimate and the Economy in India, 1850-2000

445/2019 Tirthankar Roy

This article says that climate shaped the long-term pattern of economic change in India and that the climatically conditioned economic change generated a distinct set of environmental consequences in the region. From the nineteenth century, political and economic processes that made scarce and controlled water resources more accessible to more people, enhanced welfare, enabled more food production and sustained urbanization. The same processes also raised water stress. These propositions carry lessons for comparative economic history and the conduct of discourses on sustainability in the present times.

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Research Theme: Economic History
Affiliation: External Research Associate

444/2019 Thiemo Fetzer, Srinjoy Sen and Pedro CL SouzaHousing insecurity, homelessness and populism: Evidence from the UK

444/2019 Thiemo Fetzer, Srinjoy Sen and Pedro CL Souza

Homelessness and precarious living conditions are on the rise across much of the Western world. This paper exploits exogenous variation in the affordability of rents due to a cut that substantially lowered housing benefit – a welfare benefit aimed at helping low income households pay rent. Before April 2011,local housing allowance covered up to the median level of market rents; from April 2011 onwards, only rents lower than the 30th percentile were covered.We exploit that the extent of cuts significantly depend on statistical noise due to estimation of percentiles. We document that the affordability shock caused a significant increase in: evictions; individual bankruptcies; property crimes;share of households living in insecure temporary accommodation; statutory homelessness and actual rough sleeping. The fiscal savings of the cut are much smaller than anticipated. We estimate that for every pound saved by the central government, council spending to meet statutory obligations for homelessness prevention increases by 53 pence. We further document political effects: the housing benefit cut causes lower electoral registration rates and is associated with lower turnout and higher support for Leave in the 2016 EU referendum, most likely driven by its unequal impact on the composition of those that engage with democratic processes.

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Research Theme: Political Economy
Affiliation: CAGE

443/2019 Arthur Blouin and Sharun W. MukandErasing Ethnicity? Propaganda, Nation Building and Identity in Rwanda

443/2019 Arthur Blouin and Sharun W. Mukand

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Published: Journal of Political Economy
DOI: https://dx.doi.org/10.1086/701441
Research Theme: Culture and Development
Affiliation: CAGE

442/2019 Mauro Rota and Jacob Weisdorf Expensive Labour and the Industrial Revolution: Evidence from Stable Employment in Rural Areas

442/2019 Mauro Rota and Jacob Weisdorf

In explaining the Industrial Revolution, the so-called high-wage hypothesis argues that mechanisation served to replace expensive labour. Supporting evidence comes from daily wages of urban construction workers and shows that these were higher in northwest Europe than in the south. We argue that casual urban wages overestimate the cost of early-industrial labour. Early factories were rural and thus did not pay an urban wage premium. Moreover, early factories employed stable rather than casual workers and thus did not pay a premium for job insecurity. We present novel premia-free wages paid to stable workers in rural Italy, which we compare to wages paid to similar workers in England. We find that English workers earned only 20 per cent more than their Italian counterparts in 1650, but a staggering 150 per cent more in 1800. Although our empirical evidence shows that the precondition for the high-wage hypothesis is still in place, it is no longer clear – because growing English wages and early industrialisation coincide – whether it was high wages that drove mechanisation or the other way around.

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Research Theme: Economic History
Affiliation: External Research Associate

441/2019 Nattavudh Powdthavee and Andrew J. Oswald Is There a Link Between Air Pollution and Impaired Memory? Evidence on 34,000 English Citizens

441/2019 Nattavudh Powdthavee and Andrew J. Oswald

It is known that people feel less happy in areas with higher levels of nitrogen dioxide NO2 (MacKerron and Mourato, 2009). What else might air pollution do to human wellbeing? This paper uses data on a standardized word-recall test that was done in the year 2011 by 34,000 randomly sampled English citizens across 318 geographical areas. We find that human memory is worse in areas where NO2 and PM10 levels are greater. The paper provides both (i) OLS results and (ii) instrumental-variable estimates that exploit the direction of the prevailing westerly wind and levels of population density. Although caution is always advisable on causal interpretation, these results are concerning and are consistent with laboratory studies of rats and other non-human animals. Our estimates suggest that the difference in memory quality between England’s cleanest and most-polluted areas is equivalent to the loss of memory from 10 extra years of ageing.

Published: Ecological Economics
DOI: https://doi.org/10.1016/j.ecolecon.2019.106485
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

440/2019 Neil Cummins and Cormac Ó GrádaArtisanal Skills, Watchmaking, and the Industrial Revolution: Prescot and Beyond

440/2019 Neil Cummins and Cormac Ó Gráda

The role of skills and human capital during England’s Industrial Revolution is the subject of an old but still ongoing debate. This paper contributes to the debate by assessing the artisanal skills of watchmakers and watch tool makers in southwest Lancashire in the eighteenth century and their links to apprenticeship. The flexibility of the training regime and its evolution are discussed, as is the decline of the industry.

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Research Theme: Economic History
Affiliation: External Research Associate

439/2019 Morgan Kelly, Cormac Ó Gráda and Peter Solar Safety at Sea during the Industrial Revolution

439/2019 Morgan Kelly, Cormac Ó Gráda and Peter Solar

Shipping was central to the rise of the Atlantic economies, but an extremely hazardous activity: in the 1780s, roughly five per cent of British ships sailing in summer for the United States never returned. Against the widespread belief that shipping technology was stagnant before iron steamships, in this paper we demonstrate that between the 1780s and 1820s, a safety revolution occurred that saw shipping losses and insurance rates on oceanic routes almost halved thanks to steady improvements in shipbuilding and navigation. Iron reinforcing led to stronger vessels while navigation improved, not through chronometers which remained too expensive and unreliable for general use, but through radically improved charts, accessible manuals of basic navigational techniques, and improved shore-based navigational aids.

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Research Theme: Economic History
Affiliation: External Research Associate

438/2019 Sascha O. Becker and Erik HornungThe Political Economy of the Prussian Three-class Franchise

438/2019 Sascha O. Becker and Erik Hornung

Did the Prussian three-class franchise, which politically over-represented the economic elite, affect policy-making? Combining MP-level political orientation, derived from all roll call votes in the Prussian parliament (1867–1903), with constituency characteristics, we analyze how local vote inequality, determined by tax payments, affected policymaking during Prussia’s period of rapid industrialization. Contrary to the predominant view that the franchise system produced a conservative parliament, higher vote inequality is associated with more liberal voting, especially in regions with large-scale industry. We argue that industrialists preferred self-serving liberal policies and were able to coordinate on suitable MPs when vote inequality was high.

Published: Journal of Economic History
DOI: https://doi.org/10.1017/S0022050720000443
Research Theme: Economic History
Affiliation: CAGE

437/2019 Nicholas Crafts and Terence C. MillsThe Pre-1914 UK Productivity Slowdown: A Reappraisal

437/2019 Nicholas Crafts and Terence C. Mills

This paper re-examines UK productivity growth in the decades before World War I using a new dataset compiled by Thomas and Dimsdale (2017). We find that the productivity slowdown of the early 20th century was quite modest and does not deserve to be called a climacteric. A more serious slowdown in labour productivity growth occurred in the 1870s. Neither of these episodes should be regarded as a precedent for the current severe deterioration in UK productivity performance. Nor should a late-Victorian productivity slowdown be attributed to the end of the steam age despite the popularity of this belief.

Published: European Review of Economic History
DOI: https://doi.org/10.1093/ereh/hez022
Research Theme: Economic History
Affiliation: CAGE

436/2019 Thiemo FetzerCan Workfare Programs Moderate Conflict? Evidence from India

436/2019 Thiemo Fetzer

Can public interventions persistently reduce conflict? Adverse weather shocks, through their impact on incomes, have been identified as robust drivers of conflict in many contexts. An effective social insurance system moderates the impact of adverse shocks on household incomes, and hence, could attenuate the link between these shocks and conflict. This paper shows that a public employment program in India, by providing an alternative source of income through a guarantee of 100 days of employment at minimum wages, effectively provides insurance. This has an indirect pacifying effect. By weakening the link between productivity shocks and incomes, the program uncouples productivity shocks from conflict, leading persistently lower conflict levels.

Published: Journal of the European Economic Association
DOI: https://doi.org/10.1093/jeea/jvz062
Research Theme: Political Economy
Affiliation: CAGE

435/2019 Pierre André and Yannick DuprazEducation and Polygamy: Evidence from Cameroon

435/2019 Pierre André and Yannick Dupraz

We take advantage of a wave of school constructions in Cameroon after World War II and use variations in school supply at the village level to estimate labor and marriage market returns to education in the 1976 population census. Education increases the likelihood to be in a polygamous union for men and for women, as well as the overall socioeconomic status of the spouse. We argue that education increases polygamy for women because it allows them to marry more educated and richer men, who are more likely to be polygamists. To show this, we estimate a structural model of marriage with polygamy. The positive affinity between a man’s polygamy and a woman’s education is mostly explained by the affinity of education.

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Research Theme: Economic History
Affiliation: CAGE

434/2019 Vincenzo Bove, Leandro Elia and Massimiliano FerraresiImmigration, fear of crime and public spending on security

434/2019 Vincenzo Bove, Leandro Elia and Massimiliano Ferraresi

We explore the relation between immigration, crime and local government spending on security in Italian municipalities. We find that immigration increases the share of public resources devoted to police protection, particularly when migrants are culturally distant from the native population. We uncover a misalignment between perception and reality, as immigration increases fear of future crimes rather than the actual probability of being victim of a crime. We also demonstrate that immigration from culturally distant societies is associated with a deterioration in civic cooperation and interpersonal trust, which can affect perceptions of safety and the demand for police services.

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Research Theme: Political Economy
Affiliation: External Research Associate

433/2019 Christoph KoenigPatronage and Election Fraud: Insights from Russia’s Governors 2000–2012

433/2019 Christoph Koenig

Theory and empirics suggest that patronage fosters election fraud. But why does fraud vary within autocracies where patronage’s incentives to manipulate should be uniformly high? In this paper, I explore whether information asymmetries can explain this phenomenon. I study the introduction of a patronage system which allowed Russia’s president to discretionarily appoint all 89 regional governors. After December 2004, all national elections were organized by governors facing removal but, crucially, only some were actually patronage-appointed with lower need to signal their qualities. I estimate the effect of the reform’s introduction and its staggered implementation on a new and verified regional fraud indicator for 7 national elections.

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Research Theme: Political Economy
Affiliation: External Research Associate

432/2019 Mirko Draca and Carlo SchwarzHow Polarized are Citizens? Measuring Ideology from the Ground-Up

432/2019 Mirko Draca and Carlo Schwarz

Strong evidence has been emerging that major democracies have become more politically polarized, at least according to measures based on the ideological positions of political elites. We ask: have the general public (`citizens') followed the same pattern? Our approach is based on unsupervised machine learning models as applied to issue- position survey data. This approach firstly indicates that coherent, latent ideologies are strongly apparent in the data, with a number of major, stable types that we label as: Liberal Centrist, Conservative Centrist, Left Anarchist and Right Anarchist. Using this framework, and a resulting measure of `citizen slant', we are then able to decompose the shift in ideological positions across the population over time. Specifically, we find evidence of a `disappearing center' in a range of countries with citizens shifting away from centrist ideologies into anti-establishment `anarchist' ideologies over time. This trend is especially pronounced for the US.

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Research Theme: Political Economy
Affiliation: CAGE

431/2019 David Gill and Victoria ProwseStrategic complexity and the value of thinking

431/2019 David Gill and Victoria Prowse

Response times are a simple low-cost indicator of the process of reasoning in strategic games. In this paper, we leverage the dynamic nature of response-time data from repeated strategic interactions to measure the strategic complexity of a situation by how long people think on average when they face that situation (where we categorize situations according to the characteristics of play in the previous round). We find that strategic complexity varies significantly across situations, and we find considerable heterogeneity in how responsive subjects’ thinking times are to complexity. We also study how variation in response times at the individual level across rounds affects strategic behavior and success. We find that ‘overthinking’ is detrimental to performance: when a subject thinks for longer than she would normally do in a particular situation, she wins less frequently and earns less. The behavioral mechanism that drives the reduction in performance is a tendency to move away from Nash equilibrium behavior. Overthinking is detrimental even though subjects who think for longer on average tend to be more successful. Finally, cognitive ability and personality have no effect on average response times.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

430/2019 Nicholas CraftsThe Sources of British Economic Growth since the Industrial Revolution: Not the Same Old Story

430/2019 Nicholas Crafts

This paper updates the classic growth accounting research of the early 1980s taking account of improved data that has subsequently become available. The picture of long-run growth which results from incorporating many revisions is considerably different. The long-run path of productivity growth is now that of a roller-coaster with twin peaks in the third quarters of the 19th and 20th centuries rather than a U-shape. Productivity growth appears to have been very slow to accelerate in the Industrial Revolution, the notion of an Edwardian climacteric is not persuasive and the current productivity slowdown stands out as unprecedented.

Published: Journal of Economic Surveys
DOI: https://doi.org/10.1111/joes.12349
Research Theme: Economic History
Affiliation: CAGE

429/2019 Nicholas Crafts and Terence C. MillsIs the UK Productivity Slowdown Unprecedented?

429/2019 Nicholas Crafts and Terence C. Mills

We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slowdown has resulted in productivity being 19.7% below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn. On this criterion the slowdown is unprecedented in the last 250 years. We conjecture that this reflects a combination of adverse circumstances, namely, a financial crisis, a weakening impact of ICT and impending Brexit.

Published: National Institute Economic Review
DOI: http://dx.doi.org/10.1017/nie.2020.6
Research Theme: Economic History
Affiliation: CAGE

428/2019 Lucie Gadenne, Tushar K. Nandi and Roland RathelotTaxation and Supplier Networks: Evidence from India

428/2019 Lucie Gadenne, Tushar K. Nandi and Roland Rathelot

Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supplier networks in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier-client pairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ tax choices. Finally, we test the model’s predictions using variations over time within-firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and suggestive evidence of strategic complementarities in firms’ tax choices within supplier networks.

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Research Theme: Culture and Development
Affiliation: CAGE

427/2019 Kirill Pogorelskiy and Matthew ShumNews We Like to Share: How News Sharing on Social Networks Influences Voting Outcomes

427/2019 Kirill Pogorelskiy and Matthew Shum

More voters than ever get political news from their friends on social media platforms. Is this bad for democracy? Using context-neutral laboratory experiments, we find that biased (mis)information shared on social networks affects the quality of collective decisions relatively more than does segregation by political preferences on social media. Two features of subject behavior underlie this finding: 1) they share news signals selectively, revealing signals favorable to their candidates more often than unfavorable signals; 2) they naively take signals at face value and account for neither the selection in the shared signals nor the differential informativeness of news signals across different sources.

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Research Theme: Political Economy
Affiliation: CAGE

426/2019 Mark Dincecco, James Fenske, Anil Menon and Shivaji MukherjeePre-Colonial Warfare and Long-Run Development in India

426/2019 Mark Dincecco, James Fenske, Anil Menon and Shivaji Mukherjee

We analyze the relationship between pre-colonial warfare and long-run development patterns in India. We construct a new, geocoded database of historical conflicts on the Indian subcontinent, from which we compute measures of local exposure to pre-colonial warfare. We document a positive and significant relationship between pre-colonial conflict exposure and local economic development across India today. The main results are robust to numerous checks, including controls for geographic endowments, initial state capacity, colonial-era institutions, ethnic fractionalization, and colonial and post-colonial conflict, and an instrumental variables strategy that exploits variation in pre-colonial conflict exposure driven by the cost distance to the Khyber Pass. Using rich archival and secondary data, we show that early state-making and fiscal development, greater political stability, and basic public goods investments are channels through which pre-colonial warfare has influenced local economic development.

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Research Theme: Economic History
Affiliation: CAGE

425/2019 Stephen Broadberry and Leigh Gardner Economic Growth in Sub-Saharan Africa, 1885-2008

425/2019 Stephen Broadberry and Leigh Gardner

Estimates of GDP per capita are provided on an annual basis for eight Sub-Saharan African economies for the period since 1885. Although the growth experienced in most of SSA since the mid-1990s has had historical precedents, there have also been episodes of negative growth or “shrinking”, so that long run progress has been limited. Despite some heterogeneity across countries, this must be seen as a disappointing performance for the region as a whole, given the possibilities of catch-up growth. Avoiding episodes of shrinking needs to be given a higher priority in understanding the transition to sustained economic growth.

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Research Theme: Economic History
Affiliation: CAGE

424/2019 David S. Jacks and Dennis NovyTrade Blocs and Trade Wars during the Interwar Period

424/2019 David S. Jacks and Dennis Novy

What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.

Published: Asian Economic Policy Review
DOI: https://doi.org/10.1111/aepr.12276
Research Theme: Economic History
Affiliation: CAGE

423/2019 Farzana Afridi, Amrita Dhillon and Eilon SolanElectoral Competition and Corruption: Theory and Evidence from India

423/2019 Farzana Afridi, Amrita Dhillon and Eilon Solan

In developing countries with weak enforcement, there is implicitly a large reliance on re-election incentives to reduce corruption. In this paper we extend existing models of post-election accountability with pure moral hazard to incorporate heterogeneous voters. In contrast to this existing literature, we show that electoral discipline is a weak instrument for improving accountability in a majoritarian voting system. More specifically, our model predicts that not only does corruption increase with competition under some conditions, but that the only type of corruption that is responsive to electoral competition is one where voters lose private benefits from the corruption, while corruption in public goods is not responsive. Consistent with these hypotheses, novel panel data on village level audits of one of India's largest rural public works program suggest a U-shaped relationship between electoral competition and corruption, and responsiveness of corruption only in the private benefits of the program to competition. Our findings highlight the importance of credible penalties and the need for policy interventions that reduce pilferage in the public component of welfare programs, which entail larger welfare losses to citizens.

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Research Theme: Political Economy
Affiliation: External Research Associate

422/2019 Amrita Dhillon, Andrew Pickering and Tomas SjöströmSovereign debt: election concerns and the democratic disadvantage

422/2019 Amrita Dhillon, Andrew Pickering and Tomas Sjöström

We re-examine the concept of ‘democratic advantage’ in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about 3 investment grades. With farsighted institutions there is, if anything, a democratic advantage.

Published: Oxford Economic Papers
DOI: https://doi.org/10.1111/aepr.12276
Research Theme: Political Economy
Affiliation: External Research Associate

421/2019 Leandro Prados de la EscosuraHuman Development in the Age of Globalisation

421/2019 Leandro Prados de la Escosura

This paper provides a long run view of human development as a capabilities measure of well-being for the last one-and-a-half centuries on the basis of an augmented historical human development index [AHHDI] that combines achievements in health, education, living standard, plus liberal democracy, and provides an alternative to the UN Human Development Index, HDI. The AHHDI shows substantial gains in world human development since 1870, especially during 1913-1970, but much room for improvement exists. Life expectancy has been the leading force behind its progress, especially until 1970. Human development spread unevenly. The absolute gap between western Europe and its offshoots plus Japan -the OECD- and the Rest of the world deepened over time, though fell in relative terms, with catching-up driven by longevity during the epidemiological transition and by democratization thereafter. This result compares favourably with the growing income gap. Economic growth and human development do not always go hand-in-hand.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

420/2019 Nina Boberg-Fazlić and Paul Sharp Immigrant Communities and Knowledge Spillovers: Danish-Americans and the Development of the Dairy Industry in the United States

420/2019 Nina Boberg-Fazlić and Paul Sharp

Despite the growing literature on the impact of immigration, little is known about the role existing migrant settlements can play for knowledge transmission. We present a case which can illustrate this important mechanism and hypothesize that nineteenth century Danish-American communities helped spread knowledge on modern dairying to rural America. From around 1880, Denmark developed rapidly and by 1890 it was a world-leading dairy producer. Using a difference-in-differences strategy, and data taken from the US census and Danish emigration archives, we find that counties with more Danes in 1880 subsequently both specialized in dairying and used more modern practices.

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Research Theme: Economic History
Affiliation: External Research Associate

419/2019 Sara Horrell, Jane Humphries and Jacob WeisdorfFamily standards of living over the long run, England 1280-1850

419/2019 Sara Horrell, Jane Humphries and Jacob Weisdorf

We utilise wage series for men, women and children to construct a long-run measure of family welfare in England, 1280-1850. We make adjustment for the participation rates of women and children, the varying number of days supplied to the labour market over time, the changing involvement of married women in paid work, and the evolving occupational structure of the economy. The resultant series is the first to depict the long run material experience of a representative, working family. Our family existed just above bare bones survival prior to the Black Death, but, as attested elsewhere, shortage of labour after the plague brought substantial gains. However, these gains were not unassailable. Restrictions on women’s work and Tudor turmoil pushed the family below the ‘respectable’ level previously achieved. Transformation of the economy from the mid-1600s onwards coincided with improved welfare. While the position of the representative family tracked the trajectory of GDP per capita through the early modern and industrial revolution periods, this was only achieved by shifting contributions from different family members. Our paper provides an account of long run material wellbeing on a more satisfactory basis than historians have achieved hitherto, not focused on men alone nor on marginalised women and children, but on realistically constructed historical families.

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Research Theme: Economic History
Affiliation: External Research Associate

418/2017 Amrita Dhillon, Vegard Iversen and Gaute TorsvikEmployee referral, social proximity and worker discipline: theory and suggestive evidence from India

418/2017 Amrita Dhillon, Vegard Iversen and Gaute Torsvik

We propose a new theory to explain why employers mobilize workplace insiders for the hiring of new staff. In settings with incomplete contracts, we show how workplace insiders can help employers tackle recruit discipline challenges at a lower cost. A key idea is that the employer can use sanctions against the referee to keep the new hire in line. Our model predicts that employers will use existing staff of stature and with accumulated goodwill within the firm as referees, since such staff have a personal stake in their choice of recruit. The model also predicts a strong social tie between the referee and the recruit to ensure that the recruit internalizes the costs to the referee of own misbehavior or underperformance. We use a small, in-depth dataset from India to scrutinize how well the predictions of our theory and of the main rival explanations for referral align with hiring patterns, wage and labor turnover observations. We find suggestive support for our theory and argue that these findings are hard to reconcile with rival referral explanations.

Published: Economic Development and Cultural Change
DOI: https://doi.org/10.1086/704512
Research Theme: Culture and Development
Affiliation: External Research Associate

417/2019 Farzana Afridi, Amrita Dhillon, Sherry Xin Li and Swati SharmaUsing Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India’s Manufacturing Sector

417/2019 Farzana Afridi, Amrita Dhillon, Sherry Xin Li and Swati Sharma

Production processes are often organized in teams, yet there is limited evidence on whether and how social connections and financial incentives affect productivity in tasks that require coordination among workers. We simulate assembly line production in a lab-in-the-field experiment in which workers exert real effort in a minimum-effort game in teams whose members are either socially connected or unconnected and are paid according to the group output. We find that group output increases by 18% and coordination improves by 30-39% when workers are socially connected with their co-workers. Connected groups also coordinate better when we introduce a lump sum bonus, suggesting that financial and social incentives can be complementary in this setting. These findings can plausibly be explained by trust between co-workers in socially connected teams.

Published: Journal of Development Economics
DOI: https://doi.org/10.1016/j.jdeveco.2020.102445
Research Theme: Culture and Development
Affiliation: External Research Associate

416/2019 Amrita Dhillon, Grammateia Kotsialou, PeterMcBurney and Luke RileyVoting over a distributed ledger: an interdisciplinary perspective

416/2019 Amrita Dhillon, Grammateia Kotsialou, PeterMcBurney and Luke Riley

This work discusses the potential of a blockchain based infrastructure for a decentralised online voting platform. When compared to paper based voting, online voting can vastly increase the speed that votes can be counted, expand the overall accessibility of the election system and decrease the cost of turnout. Yet despite these advantages, online voting for political office is subject to fraud at various levels due to its centralised nature. In this paper, we describe a general architecture of a centralised online voting system and detail which areas of such a system are vulnerable to electoral fraud. We then proceed to introduce the key ideas underlying blockchain technology as a decentralised mechanism that can address these problems. We discuss the advantages and weaknesses of the blockchain technology, the protocols the technology uses and what criteria a good blockchain protocol should satisfy (depending on the voting application). We argue that the decentralisation inherent in the blockchain technology could increase the public’s trust in national elections, as well as eliminate voter impersonation and double voting. We conclude with a discussion regarding how economists and social scientists can collaborate with the blockchain community in a research agenda on the design of efficient blockchain protocols and new voting systems such as liquid democracy.

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Research Theme: Political Economy
Affiliation: External Research Associate

415/2019 Vincenzo Bove, Georgios Efthyvoulou and Harry PickardDid terrorism affect the Brexit vote?

415/2019 Vincenzo Bove, Georgios Efthyvoulou and Harry Pickard

We contribute to the recent research on Brexit and public opinion formation by contending that the determinants of the referendum results should be evaluated against the background of wider public security concerns. Terrorism has long been regarded as a top concern by the British public, more than in any other European country. Terrorist attacks on UK soil raised voters’ awareness of security issues and their saliency in the context of an EU referendum. We find that locations affected by terrorist violence in their proximity exhibit an increase in the share of pro-Remain votes, particularly for more sensational attacks. Using individual-level data, we show that in the aftermath of terrorist attacks, citizens are more likely to reconsider the security risks involved in leaving the EU.

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Research Theme: Political Economy
Affiliation: External Research Associate

414/2019 Arun Advani, William Elming and Jonathan ShawThe Dynamic Effects of Tax Audits

414/2019 Arun Advani, William Elming and Jonathan Shaw

Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit - the dynamic effect - for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers' ability to misreport.

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Research Theme: Culture and Development
Affiliation: CAGE

413/2019 C. Knick HarleyThe Industrial Revolution in General Equilibrium

413/2019 C. Knick Harley

This paper explores the authors shared view that a general equilibrium/ trade theory perspective is appropriate to understand what was going on between 1750 and 1850 and how this period fit into the emergence of modern economic growth over thelong run.

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Research Theme: Economic History
Affiliation: CAGE

412/2019 Sascha O. Becker, Ana Fernandes and Doris WeichselbaumerDiscrimination in Hiring Based on Potential and Realized Fertility: Evidence from a Large-Scale Field Experiment

412/2019 Sascha O. Becker, Ana Fernandes and Doris Weichselbaumer

Due to conventional gender norms, women are more likely to be in charge of childcare than men. From an employer’s perspective, in their fertile age they are also at “risk” of pregnancy. Both factors potentially affect hiring practices of firms. We conduct a largescale correspondence test in Germany, Switzerland, and Austria, sending out approx. 9,000 job applications, varying job candidate’s personal characteristics such as marital status and age of children. We find evidence that, for part-time jobs, married women with older kids, who likely finished their childbearing cycle and have more projectable childcare chores than women with very young kids, are at a significant advantage vis-à-vis other groups of women. At the same time, married, but childless applicants, who have a higher likelihood to become pregnant, are at a disadvantage compared to single, but childless applicants to part-time jobs. Such effects are not present for full-time jobs, presumably, because by applying to these in contrast to part-time jobs, women signal that they have arranged for external childcare.

Published: Labour Economics
DOI: https://doi.org/10.1016/j.labeco.2019.04.009
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

411/2019 Arun Advani, Toru Kitagawa and Tymon SłoczyńskiMostly Harmless Simulations? Using Monte Carlo Studies for Estimator Selection

411/2019 Arun Advani, Toru Kitagawa and Tymon Słoczyński

We consider two recent suggestions for how to perform an empirically motivated Monte Carlo study to help select a treatment effect estimator under unconfoundedness. We show theoretically that neither is likely to be informative except under restrictive conditions that are unlikely to be satisfied in many contexts. To test empirical relevance, we also apply the approaches to a real-world setting where estimator performance is known. Both approaches are worse than random at selecting estimators which minimise absolute bias. They are better when selecting estimators that minimise mean squared error. However, using a simple bootstrap is at least as good and often better. For now researchers would be best advised to use a range of estimators and compare estimates for robustness.

Published: Journal of Applied Econometrics
DOI: https://doi.org/10.1002/jae.2724
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

410/2019 Chunding Li, Jing Wang and John WhalleyTrade Protectionism and US Manufacturing Employment

410/2019 Chunding Li, Jing Wang and John Whalley

This paper uses a numerical global general equilibrium model to simulate the possible effects of US initiated trade protection measures on US manufacturing employment. The simulation results show that US trade protection measures do not increase but will instead reduce manufacturing employment, and US losses will further increase if trade partners take retaliatory measures. The mechanism is that although the substitution effects between domestic and foreign goods have positive impacts, the substitution effects between manufacturing and service sectors and the retaliatory effects both have negative influences, therefore the whole effect is that the US will lose manufacturing employment.

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Research Theme: Political Economy
Affiliation: External Research Associate

409/2019 Neha Bose and Daniel SgroiSmall Talk and Theory of Mind in Strategic Decision-Making

409/2019 Neha Bose and Daniel Sgroi

Humans routinely chat with each other about many things like the news, weather or sports. In important decision-making settings, informal communication of this sort (so-called “small talk”) has been largely dismissed by social scientists as wasteful and strategically empty. We provide new evidence that this is far from true: after a 4- minute conversation, subjects developed a sense of the personality of others which in a pre-registered RCT resulted in significantly different behaviour in future interactions. They contributed more in public good games and found it more difficult to out-guess opponents they felt were like themselves. We explain this behaviour, and using textanalysis, measure the direct impact of differences in language: for example, talking more made subjects seem more pro-social, engendering pro-social behaviour in others.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

408/2019 Mark HarrisonContracting for Counterintelligence: the KGB and Soviet Informers of the 1960s and 1970s

408/2019 Mark Harrison

The informer network was a part of the human capital of the communist police state, which had the property of dissolving the freestanding social capital of ordinary citizens. How was it built, and what was the agency of the informers in the process? A few documents from the archives of the Soviet security police allow us to see good practices as the KGB saw them. They show some of the routes by which informers came to the attention of the KGB, their varied motivations, and their social and psychological strengths and weaknesses. The pivot of the process was a contract for counter-intelligence services. The contract itself was partly written, partly verbal or implied, and highly incomplete. Before the contract, searching and due diligence were required to identify potential recruits. After the contract, to turn a recruit into a productive informer involved a further period of training and monitoring, often extending to renegotiation and further investments by both sides in the capabilities of the informer and the relationship of trust with the handler. Trust and deception were two sides of the informer’s coin.

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Research Theme: Economic History
Affiliation: CAGE

407/2019 Thiemo Fetzer and Carlo SchwarzTrade wars and politics: evidence from Trump’s trade wars

407/2019 Thiemo Fetzer and Carlo Schwarz

We use the recent trade escalation between the US and its trade partners to study whether retaliatory tariffs are politically targeted. We find comprehensive evidence using individual- and aggregate voting data suggesting that retaliation is carefully targeted to hurt Trump. We develop a simulation approach to construct counterfactual retaliation responses allowing us to both quantify the extent of political targeting, while also studying potential tradeoffs. China, appears to put a large weight on achieving maximal political targeting. The EU seems successful in maximizing political targeting, while at the same time minimizing the potential damage to its economy

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Research Theme: Political Economy
Affiliation: CAGE

406/2019 David de la Croix, Eric B. Schneider and Jacob Weisdorf Childlessness, Celibacy and Net Fertility in Pre-Industrial England: The Middle-class Evolutionary Advantage

406/2019 David de la Croix, Eric B. Schneider and Jacob Weisdorf

In explaining England’s early industrial development, previous research has highlighted that wealthy pre-industrial elites had more surviving offspring than their poorer counterparts. Thus, entrepreneurial traits spread and helped England grow rich. We contest this view, showing that lower-class reproduction rates were no different from the elites when taking singleness and childlessness into account. Elites married less and were more often childless. Many died without descendants. We find that the middle classes had the highest net reproduction and argue that this advantage was instrumental to England’s economic success because the middle class invested most strongly in human capital.

Published: Journal of Economic Growth
DOI: http://doi.org/10.1007/s10887-019-09170-6
Research Theme: Economic History
Affiliation: External Research Associate

405/2019 Philipp Lergetporer and Ludger WoessmannThe Political Economy of Higher Education Finance: How Information and Design Affect Public Preferences for Tuition

405/2019 Philipp Lergetporer and Ludger Woessmann

Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students.

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Research Theme: Culture and Development
Affiliation: External Research Associate

404/2019 Ana Maria Santacreu and Liliana VarelaInnovation and the Patterns of Trade: A Firm-Level Analysis

404/2019 Ana Maria Santacreu and Liliana Varela

This paper studies the impact of increased import penetration on a country’s long-term patterns of trade. It shows that foreign competition induces firms to increase their R&D efforts in order to differentiate their products and escape competition. Quality improvements translate into increases in firms’ exports. This effect, however, is heterogeneous across sectors and is driven by sectors’ in which the country has a comparative advantage. On the aggregate, the impact of import competition on innovation and a country’s patterns of trade depends crucially on the distribution of sectoral comparative advantage. We provide evidence of this mechanism using firm-level data on trade and innovation for France and import competition driven by China’s WTO entry.

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Research Theme: Economic History
Affiliation: External Research Associate

403/2019 Julia Cajal Grossi, Rocco Macchiavello and Guillermo NogueraInternational Buyers' Sourcing and Suppliers' Markups in Bangladeshi Garments

403/2019 Julia Cajal Grossi, Rocco Macchiavello and Guillermo Noguera

Large international buyers play a key role in global value chains. We exploit detailed transaction-level data on the usage of material inputs to study how Bangladeshi garment suppliers' markups vary across international buyers. We find substantial dispersion in markups across export orders of a given seller for the same product. Buyer effects explain a significant share of this variation, while destination effects do not. Buyers adopting relational sourcing strategies pay higher markups than non-relational buyers. This pattern holds within seller-product-year combinations, is robust to controlling for the buyer's size, traded volumes, and quality, and, together with larger volumes, implies higher prots for suppliers dealing with relational buyers.

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Research Theme: Culture and Development
Affiliation: External Research Associate

402/2019 Bishnupriya Gupta, Dilip Mookherjee, Kaivan Munshi and Mario SanclementeCommunity Origins of Industrial Entrepreneurship in Pre-Independence India

402/2019 Bishnupriya Gupta, Dilip Mookherjee, Kaivan Munshi and Mario Sanclemente

We argue that community networks played an important role in the emergence of Indian entrepreneurship in the early stages of the cotton textile and jute textile industries in the late 19th and early 20th century respectively, overcoming the lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We nd no evidence that entry is affected by prior trading experience or price shocks in the corresponding upstream sector. Firm directors exhibited a high degree of clustering of entrepreneurs by community. The dynamics of entry is consistent with a model of network-based dynamics.

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Research Theme: Culture and Development
Affiliation: CAGE

401/2019 Clement de Chaisemartin and Nicolas NavarreteThe direct and spillover effects of a mental health program for disruptive students

401/2019 Clement de Chaisemartin and Nicolas Navarrete

A large literature nds that cognitive behavioral therapy programs for disruptive students can reduce their disruptiveness and improve their academic outcomes. However, the literature has mostly considered demonstration programs implemented with signicant researcher involvement, and has not studied the spillover effects on ineligible students. In this paper, we use a randomized controlled trial to estimate the direct and spillover effects of one such program, implemented as a nationwide policy in Chile. The program has no effect on eligible students' disruptiveness and academic outcomes. It increases the disruptiveness of ineligible students. Finally, it increases the segregation between eligible and ineligible students.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

400/2019 Mauro Rota and Jacob WeisdorfWhy was the First Industrial Revolution English? Roman Real Wages and the Little Divergence within Europe Reconsidered

400/2019 Mauro Rota and Jacob Weisdorf

We compare early-modern Roman construction wages to Judy Stephenson’s downward-adjusted construction wages for London. We find that Roman workers earned at least as much as their London counterparts in the run-up to the Industrial Revolution, challenging the high-wage-economy explanation for why the Industrial Revolution was English and not Italian. We argue, however, that daily construction wages present a poor testing ground for the high-wage hypothesis, proposing instead that wages are compared among permanent employees in sectors less prone to seasonality and economic fluctuations than construction work.

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Research Theme: Economic History
Affiliation: CAGE

399/2019 Nicholas Crafts The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate

399/2019 Nicholas Crafts

Conventional estimates suggest that the 2007-9 financial crisis reduced UK potential output by 3.8 to 7.5 per cent of GDP. This implied a need for fiscal tightening as the structural budget deficit had increased considerably. The austerity that followed led to the rise of UKIP, the EU referendum and the vote for Brexit. Brexit will reduce potential output by somewhere between 3.9 and 8.7 per cent of GDP. Thus, it can be argued that the total fall in UK potential output due to the banking crisis is approximately double the conventional estimate.

Published: Comparative Economic Studies
DOI: https://doi.org/10.1057/s41294-019-00094-z
Research Theme: Economic History
Affiliation: CAGE

398/2019 Marcus MillerThe Financial Alchemy that Failed

398/2019 Marcus Miller

With his conception of successive Ages of Capitalism, Anatole Kaletsky provides a canvas broad enough to encompass the banking crisis of 2008 and much more. After briefly outlining the Four Ages he identifies, we focus on the period of the Great Moderation when Inflation Targeting seemed to have solved the problem macroeconomic management, until it ended in spectacular failure. The rapid growth of cross-border banking, with securitized assets funded by wholesale money, evidently posed threats to financial stability that had been ignored by a regime targeting consumer prices. We look at three: the pecuniary externalities exerted by asset price changes on investment banking; information failures leading to an exaggerated banking boom; and the risk of insolvency in the subsequent bank run. The financial system pre-crash was, it seems, flawed by two Fallacies of Composition: by regulation that reckoned making individual banks safe guaranteed systemic stability; and a business model that reckoned securitization ensured liquidity whenever necessary. Finally, we discuss how, in different countries, the law has variously been invoked to handle reckless banking.

Published: The 2008 Global Financial Crisis in Retrospect
DOI: https://link.springer.com/book/10.1007%2F978-3-030-12395-6
Research Theme: Economic History
Affiliation: CAGE

397/2019 Chloe Michel, Michelle Sovinsky, Eugenio Proto and Andrew J OswaldAdvertising as a Major Source of Human Dissatisfaction: Cross-National Evidence on One Million Europeans

397/2019 Chloe Michel, Michelle Sovinsky, Eugenio Proto and Andrew J Oswald

Advertising is ubiquitous in modern life.Yet might it be harmful to the happiness of nations? This paper blends longitudinal data on advertising with large-scale surveys on citizens well-being.The analysis uses information on approximately 1 million randomly sampled European citizens across 27 nations over 3 decades. We show that increases in national advertising expenditure are followed by significant declines in levels of life satisfaction.This finding is robust to adjustments for a range of potential confounders -- including the personal and economic characteristics of individuals, country fixed-effects, year dummies, and business-cycle influences.Further research remains desirable. Nevertheless, our empirical results are some of the first to be consistent with the hypothesis that, perhaps by fostering unending desires, high levels of advertising may depress societal well-being.

Published: The Economics of Happiness
DOI: http://link-springer-com-443.webvpn.fjmu.edu.cn/chapter/10.1007%2F978-3-030-15835-4_10
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

396/2018 Damon Clark, David Gill, Victoria Prowse, Mark GillUsing Goals to Motivate College Students: Theory and Evidence from Field Experiments

396/2018 Damon Clark, David Gill, Victoria Prowse, Mark Gill

Will college students who set goals for themselves work harder and achieve better outcomes? In theory, setting goals can help present-biased students to mitigate their self-control problem. In practice, there is little credible evidence on the causal effects of goal setting for college students. We report the results of two eld experiments that involved almost four thousand college students in total. One experiment asked treated students to set goals for performance in the course; the other asked treated students to set goals for a particular task (completing online practice exams). Task-based goals had robust positive effects on the level of task completion, and task-based goals also increased course performance. We also find that performance-based goals had positive but small effects on course performance. We use a theoretical framework that builds on present bias and loss aversion to interpret our results. Since task-based goal setting is low-cost, scalable and logistically simple, we conclude that our findings have important implications for educational practice and future research.

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Research Theme: Behavioural economics and wellbeing
Affiliation: External Research Associate

395/2018 Sascha O. Becker, Andreas Ferrara, Eric Melander and Luigi PascaliWars, Local Political Institutions, and Fiscal Capacity: Evidence from Six Centuries of German History

395/2018 Sascha O. Becker, Andreas Ferrara, Eric Melander and Luigi Pascali

We study the effect of warfare on the development of state capacity and representative institutions using novel data on cities and territories in the German lands between 1200 and 1750. More specifically, we show that cities with a higher conflict exposure establish more sophisticated tax systems, but also develop larger councils, councils that are more likely to be elected by citizens, and more likely to be independent of other local institutions. These results are consistent with the idea of a trade-off between more efficient taxation and power sharing proposed in earlier work. We make headway on establishing a causal role of wars by using changes to German nobles’ positions within the European nobility network to instrument for conflict.

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Research Theme: Economic History
Affiliation: CAGE

394/2018 Eleonora Alabrese and Thiemo FetzerWho is NOT voting for Brexit anymore?

394/2018 Eleonora Alabrese and Thiemo Fetzer

Using estimates of support for Leave across UK local authority areas constructed from a comprehensive 20,000 strong survey, we show that both the level and the geographic variation capturing differential degrees of support for Leave have changed significantly since the 2016 EU referendum. A lot of area characteristics, many of which were previously associated with higher levels of support for Leave, are now significant correlates capturing a swing towards Remain. They include, for example, the degree to which local authorities receive transfers from the EU or the extent to which their economies rely on trade with the EU, along with past electoral support for UKIP (and the BNP) and exposure to immigration from Eastern Europe. Lastly, exposure to austerity since 2010 is among the strongest individual correlates weakening the support for Leave. The evidence is consistent with the argument that the small margin of victory of Leave in 2016 was, to a significant extent, carried by protest voters, who used the EU referendum to voice their discontent with domestic social and economic developments, particularly, austerity. Lastly, we present some evidence suggesting that the UK public, even in Leave supporting areas, would be much more willing to make compromises on free movement and aspects of single market membership compared to what appears to be the UK governments negotiation objective.

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Research Theme: Political Economy
Affiliation: CAGE

393/2018 Peter Sandholt Jensen, Cristina Victoria Radu, Battista Severgnini and Paul SharpThe introduction of serfdom and labor markets

393/2018 Peter Sandholt Jensen, Cristina Victoria Radu, Battista Severgnini and Paul Sharp

We provide evidence of how restrictions on labor mobility, such as serfdom and other types of labor coercion, impact labor market outcomes. To do so, we estimate the impact of a large negative shock to labor mobility in the form of the reintroduction of serfdom in Denmark in 1733, which was targeted at limiting the mobility of farmhands. Using a unique data source based on the archives of estates from the eighteenth century, we test whether serfdom affected the wages of farmhands more strongly than other groups in the labor market, and results based on a differences-in-differences approach reveal evidence consistent with a strong negative effect following its introduction. We also investigate whether one mechanism was that boys with rural backgrounds were prevented from taking up apprenticeships in towns, and find suggestive evidence that this was indeed the case. Thus, our results suggest that serfdom was effectively reducing mobility.

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Research Theme: Economic History
Affiliation: External Research Associate

392/2018 Annika B. Bergbauer, Eric A. Hanushek, and Ludger WoessmannTesting

392/2018 Annika B. Bergbauer, Eric A. Hanushek, and Ludger Woessmann

School systems regularly use student assessments for accountability purposes. But, as highlighted by our conceptual model, different configurations of assessment usage generate performance-conducive incentives of different strengths for different stakeholders in different school environments. We build a dataset of over 2 million students in 59 countries observed over 6 waves in the international PISA student achievement test 2000-2015. Our empirical model exploits the country panel dimension to investigate reforms in assessment systems over time, where identification comes from taking out country and year fixed effects along with a rich set of student, school, and country measures. We find that the expansion of standardized external comparisons, both school-based and student-based, is associated with improvements in student achievement. The effect of school-based comparison is stronger in countries with initially low performance. Similarly, standardized monitoring without external comparison has a positive effect in initially poorly performing countries. By contrast, the introduction of solely internal testing and internal teacher monitoring including inspectorates does not affect student achievement. Our findings point out the pitfalls of overly broad generalizations from specific country testing systems.

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Research Theme: Culture and development
Affiliation: External Research Associate

391/2018 Philipp Lergetporer, Katharina Werner, and Ludger WoessmannEducational Inequality and Public Policy Preferences: Evidence from Representative Survey Experiments

391/2018 Philipp Lergetporer, Katharina Werner, and Ludger Woessmann

To study how information about educational inequality affects public concerns and policy preferences, we devise survey experiments in representative samples of the German population. Providing information about the extent of educational inequality strongly increases concerns about educational inequality but only slightly affects support for equity-oriented education policies, which is generally high. The small treatment effects are not due to respondents’ failure to connect policies with educational inequality or aversion against government interventions. Support for compulsory preschool is the one policy with a strong positive information treatment effect, which is increased further by informing about policy effectiveness.

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Research Theme: Culture and development
Affiliation: External Research Associate

390/2018 Erik HornungDiasporas, Diversity, and Economic Activity: Evidence from 18th-century Berlin

390/2018 Erik Hornung

Diversity may either increase economic activity by utilizing complementarities in production or lead to costly conflict over resources. Using citydistrict panel data from 18th-century Berlin, a major center of refuge for persecuted minorities in early modern Europe, we analyze the relationship between changes in diversity and economic activity. Prussian rulers specifically invited groups of skilled immigrants, such as Jews, Huguenots, and Bohemians, to settle in Berlin’s newly-developed city quarters. We find that the resulting ethnic diversity fosters textile production in a much broader range of products than individual ethnicities, arguably reflecting complementarities between groups.

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Research Theme: Economic History
Affiliation: External Research Associate

389/2018 Federica Liberini, Michela Redoano, Antonio Russo, Angel Cuevas and Ruben CuevasPolitics in the Facebook Era Evidence from the 2016 US Presidential Elections

389/2018 Federica Liberini, Michela Redoano, Antonio Russo, Angel Cuevas and Ruben Cuevas

Social media enable politicians to personalize their campaigns and target voters who may be decisive for the outcome of elections. We assess the effects of such political\micro-targeting" by exploiting variation in daily advertising prices on Facebook, collected during the course of the 2016 U.S. presidential campaign. We analyze the variation of prices across political ideologies and propose a measure for the intensity of online political campaigns. Combining this measure with information from the ANES electoral survey, we address two fundamental questions: (i) To what extent did political campaigns use social media to micro-target voters? (ii) How large was the effect, if any, on voters who were heavily exposed to campaigning on social media? We find that online political campaigns targeted on users' gender, geographic location, and political ideology had a signicant effect in persuading undecided voters to support Mr Trump, and in persuading Republican supporters to turn out on polling day. Moreover the effect of micro-targeting on Facebook was strongest among users without university or college-level education.

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Research Theme: Political Economy
Affiliation: CAGE

388/2018 Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson and Ahmed UsmanThe Economic Effects of Brexit - Evidence from the Stock Market

388/2018 Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson and Ahmed Usman

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess investors.expectations about the effects of leaving the European Union on the UK economy. Our results suggest that initial stock price movements were driven by fears of a cyclical downturn and by the sterling depreciation following the referendum. We also find tentative evidence that market reactions to two subsequent speeches by Theresa May (her Conservative Party conference and Lancaster House speeches) were more closely correlated with potential changes to tariffs and non-tariff barriers on UK-EU trade, indicating that investors may have updated their expectations in light of the possibility of a hard Brexit. We do not find a correlation between the share of EU migrants in different industries and stock market returns.

Published: Fiscal Studies, Journal of Applied Public Economics
DOI: http://dx.doi.org/10.1111/1475-5890.12175
Research Theme: Political Economy
Affiliation: CAGE

387/2018 Andreas FerreraWorld War II and African American Socioeconomic Progress

387/2018 Andreas Ferrera

This paper argues that the unprecedented socioeconomic rise of African Americans at mid-century is causally related to the labor shortages induced by WWII. Results from combining novel military and Census data in a difference-in-differences setting show that counties with an average casualty rate among semi-skilled whites experienced a 13 to 16% increase in the share of blacks in semi-skilled jobs. The casualty rate also has a signicant reduced form effect on cross-state migration, wages, home ownership, house value, and education for blacks. Using survey data from 1961, IV regression results indicate that the economic upgrade, which is instrumented with the semi-skilled white casualty rate, is also associated with an increase in social status. Both black and white individuals living in treated counties are more likely to have an interracial friendship, live in mixed-race neighborhoods, and to have reduced preferences for segregation.

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Research Theme: Economic History
Affiliation: CAGE

386/2018 Graciela Chichilnisky, Peter Hammond and Nicholas SternShould We Discount the Welfare of Future Generations? Ramsey and Suppes versus Koopmans and Arrow

386/2018 Graciela Chichilnisky, Peter Hammond and Nicholas Stern

Ramsey famously pronounced that discounting “future enjoyments” would be ethically indefensible. Suppes enunciated an equity criterion implying that all individuals’ welfare should be treated equally. By contrast, Arrow (1999a, b) accepted, perhaps rather reluctantly, the logical force of Koopmans’ argument that no satisfactory preference ordering on a sufficiently unrestricted domain of infinite utility streams satisfies equal treatment. In this paper, we first derive an equitable utilitarian objective based on a version of the Vickrey–Harsanyi original position, extended to allow a variable and uncertain population with no finite bound. Following the work of Chichilnisky and others on sustainability, slightly weakening the conditions of Koopmans and co-authors allows intergenerational equity to be satisfied. In fact, assuming that the expected total number of individuals who ever live is finite, and that each individual’s utility is bounded both above and below, there is a coherent equitable objective based on expected total utility. Moreover, it implies the “extinction discounting rule” advocated by, inter alia, the Stern Review on climate change.

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Research Theme: Behavioural economics and well-being
Affiliation: CAGE

385/2018 Prashant Bharadwaj, James Fenske, Rinchan Ali Mirza, and Namrata KalaThe Green Revolution and Infant Mortality in India

385/2018 Prashant Bharadwaj, James Fenske, Rinchan Ali Mirza, and Namrata Kala

We use a difference in differences approach to show that the adoption of High Yielding Varieties (HYV) reduced infant mortality in India. This holds even comparing children of the same mother. Children of mothers whose characteristics predict higher child mortality, rural children, boys, and low-caste children benefit more from HYV adoption. We find no obvious evidence that parental investments respond to HYV adoption. We find little evidence of selection into child bearing in response to HYV adoption.

Published: Journal of Health Economics
DOI: https://doi.org/10.1016/j.jhealeco.2020.102314
Research Theme: Culture and development
Affiliation: CAGE

384/2018 Eleonora Alabrese, Sascha O. Becker, Thiemo Fetzer and Dennis NovyWho Voted for Brexit? Individual and Regional Data Combined

384/2018 Eleonora Alabrese, Sascha O. Becker, Thiemo Fetzer and Dennis Novy

Previous analyses of the 2016 Brexit referendum used region-level data or small samples based on polling data. The former might be subject to ecological fallacy and the latter might suffer from small-sample bias. We use individual-level data on thousands of respondents in Understanding Society, the UK’s largest household survey, which includes the EU referendum question. We find that voting Leave is associated with older age, white ethnicity, low educational attainment, infrequent use of smartphones and the internet, receiving benefits, adverse health and low life satisfaction. These results coincide with corresponding patterns at the aggregate level of voting areas. We therefore do not find evidence of ecological fallacy. In addition, we show that prediction accuracy is geographically heterogeneous across UK regions, with strongly pro-Leave and strongly pro-Remain areas easier to predict. We also show that among individuals with similar socioeconomic characteristics, Labour supporters are more likely to support Remain while Conservative supporters are more likely to support Leave.

Published: European Journal of Political Economy
DOI: https://doi.org/10.1016/j.ejpoleco.2018.08.002
Research Theme: Political Economy
Affiliation: CAGE

383/2018 Thiemo Fetzer, Oliver Vanden Eynde and Austin L. WrightSecurity Transitions

383/2018 Thiemo Fetzer, Oliver Vanden Eynde and Austin L. Wright

How do foreign powers disengage from a conflict? We study the recent largescale security transition from international troops to local forces in the context of the ongoing civil conflict in Afghanistan. We construct a new dataset that combines information on this transition process with declassified conflict outcomes and previously unreleased quarterly survey data. Our empirical design leverages the staggered roll-out of the transition onset, together with a novel instrumental variables approach to estimate the impact of the two-phase security transition. We find that the initial security transfer to Afghan forces is marked by a significant, sharp and timely decline in insurgent violence. This effect reverses with the actual physical withdrawal of foreign troops. We argue that this pattern is consistent with a signaling model, in which the insurgents reduce violence strategically to facilitate the foreign military withdrawal. Our findings clarify the destabilizing consequences of withdrawal in one of the costliest conflicts in modern history and yield potentially actionable insights for designing future security transitions.

Published:
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Research Theme: Political Economy
Affiliation: CAGE

382/2018 David Gill and Victoria ProwseMeasuring costly effort using the slider task

382/2018 David Gill and Victoria Prowse

Using real effort to implement costly activities increases the likelihood that the motivations that drive effort provision in real life carry over to the laboratory. However, unobserved differences between subjects in the cost of real effort make quantitative prediction problematic. In this paper we present the slider task, which was designed by us to overcome the drawbacks of real-effort tasks. The slider task allows the researcher to collect precise and repeated observations of effort provision from the same subjects in a short time frame. The resulting high-quality panel data allow sophisticated statistical analysis. We illustrate these advantages in two ways. First, we show how to use panel data from the slider task to improve precision by controlling for persistent unobserved heterogeneity. Second, we show how to estimate effort costs at the subject level by exploiting within-subject variation in incentives across repetitions of the slider task. We also provide z-Tree code and practical guidance to help researchers implement the slider task.

Published: Journal of Behavioral and Experimental Finance
DOI: https://doi.org/10.1016/j.jbef.2018.11.003
Research Theme: Behavioural economics and wellbeing
Affiliation: External Research Associate

381/2018 Thiemo FetzerDid Austerity Cause Brexit?

381/2018 Thiemo Fetzer

Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific rules-based welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances. Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.

Published: American Economic Review
DOI: https://doi.org/10.1257/aer.20181164
Research Theme: Political Economy
Affiliation: CAGE

380/2018 Alexander M. Danzer, Carsten Feuerbaum, Marc Piopiunik, and Ludger Woessmann Growing up in Ethnic Enclaves: Language Proficiency and Educational Attainment of Immigrant Children

380/2018 Alexander M. Danzer, Carsten Feuerbaum, Marc Piopiunik, and Ludger Woessmann

Does a high regional concentration of immigrants of the same ethnicity affect immigrant children’s acquisition of host-country language skills and educational attainment? We exploit the exogenous placement of guest workers from five ethnicities across German regions during the 1960s and 1970s in a model with region and ethnicity fixed effects. Our results indicate that exposure to a higher own-ethnic concentration impairs immigrant children’s host-country language proficiency and increases school dropout. A key mediating factor for this effect is parents’ lower speaking proficiency in the host-country language, whereas inter-ethnic contacts with natives and economic conditions do not play a role.

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Research Theme: Economic History
Affiliation: External Research Associate

379/2018 Alessandro Belmonte and Armando Di LilloThe Legacy of Forced Assimilation Policies: Entry Barriers in the Labor Market and Anti-German Sentiments in South Tyrol

379/2018 Alessandro Belmonte and Armando Di Lillo

We study the institutional determinants of ethnic conflict by exploiting a unique historical setting originated from a failed forced assimilation program, the Italianization of South Tyrol. The program imposed entry barriers, for non-Italian speakers, in the labor market for public servants. The specialization of the Italians continued until 1966 when it was put in discussion by the announcement of a reform. After 1966, we document an increase in anti-German sentiments where specialization in the public sector was more pronounced. Our results indicate that deep-rooted inter-ethnic tensions are likely to revive when historically-established economic rents of privileged ethnic groups are threatened.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

378/2018 Morgan Kelly and Cormac O GradaGravity and Migration before Railways

378/2018 Morgan Kelly and Cormac O Grada

Although urban growth historically depended on large inflows of migrants, little is known of the process of migration in the era before railways. Here we use detailed data for Paris on women arrested for prostitution in the 1760s, or registered as prostitutes in the 1830s and 1850s; and of men holding identity cards in the 1790s, to examine patterns of female and male migration. We supplement these with data on all women and men buried in 1833. Migration was highest from areas of high living standards, measured by literacy rates. Distance was a strong deterrent to female migration (reflecting limited employment opportunities) that falls with railways, whereas its considerably lower impact on men barely changes through the nineteenth century.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

377/2018 Thiemo Fetzer and Stephan KyburzCohesive Institutions and Political Violence

377/2018 Thiemo Fetzer and Stephan Kyburz

Can institutionalized transfers of resource rents be a source of civil conflict? Are cohesive institutions better in managing distributive conflicts? We study these questions exploiting exogenous variation in revenue disbursements to local governments together with new data on local democratic institutions in Nigeria. We make three contributions. First, we document the existence of a strong link between rents and conflict far away from the location of the actual resource. Second, we show that distributive conflict is highly organized involving political militias and concentrated in the extent to which local governments are non-cohesive. Third, we show that democratic practice in form having elected local governments significantly weakens the causal link between rents and political violence. We document that elections (vis-a-vis appointments), by producing more cohesive institutions, vastly limit the extent to which distributional conflict between groups breaks out following shocks to the available rents. Throughout, we confirm these findings using individual level survey data.

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Research Theme: Political Economy
Affiliation: CAGE

376/2018 Sascha O. Becker and Thiemo FetzerHas Eastern European Migration Impacted UK-born Workers?

376/2018 Sascha O. Becker and Thiemo Fetzer

The 2004 accession of 8 Eastern European countries to the European Union (EU) was accompanied by fears of mass migration. The United Kingdom - unlike many other EU countries - did not opt for temporary restrictions on the EU’s free movement of labour. We document that following EU accession more than 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. We show that they mostly settled in places that had limited prior exposure to immigration. We provide evidence that these areas subsequently saw smaller wage growth at the lower end of the wage distribution and increased pressure on the welfare state, housing and public services. Using novel geographically disaggregated data by country-of-origin, we measure the effects of Eastern European migration on these outcomes for the UK-born and different groups of immigrants. Our results are important in the context of the UK’s Brexit referendum and the ongoing EU withdrawal negotiations in which migration features as a key issue.

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Research Theme: Political Economy
Affiliation: CAGE

375/2018 Carl-Johan Dalgaard, Casper Worm Hansen and Holger StrulikPhysiological Aging around the World and Economic Growth

375/2018 Carl-Johan Dalgaard, Casper Worm Hansen and Holger Strulik

As the composition of the world population gradually shifts towards older age groups, it becomes increasingly important to understand the influence of aging on macro- economic outcomes of interest. Until now, however, it has been impossible to separate out the role played by demographics from the pure role of aging at the country level. Drawing on research in the fields of biology and medicine, the present study provides data on physiological aging. Our data shows that, over the last quarter of a century, the average person in the global labor force has not grown older in physiological terms. In an application of our panel dataset, we find evidence that accelerated physiological aging causally reduces labor productivity. Taken together, our analysis suggests that if productivity growth has deaccelerated in recent decades, physiological aging is unlikely to be a contributing force.

Published:
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Research Theme: Culture and development
Affiliation: External Research Associate

374/2018 Sascha O. Becker, Irena Grosfeld, Pauline Grosjean, Nico Voigtländer and Ekaterina ZhuravskayaForced Migration and Human Capital: Evidence from Post-WWII Population Transfers

374/2018 Sascha O. Becker, Irena Grosfeld, Pauline Grosjean, Nico Voigtländer and Ekaterina Zhuravskaya

We exploit a unique historical setting to study the long-run effects of forced migration on investment in education. After World War II, the Polish borders were redrawn, resulting in large-scale migration. Poles were forced to move from the Kresy territories in the East (taken over by the USSR) and were resettled mostly to the newly acquired Western Territories, from which Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in education, Poles with a family history of forced migration are significantly more educated today. Descendants of forced migrants have on average one extra year of schooling, driven by a higher propensity to finish secondary or higher education. This result holds when we restrict ancestral locations to a subsample around the former Kresy border and include fixed effects for the destination of migrants. As Kresy migrants were of the same ethnicity and religion as other Poles, we bypass confounding factors of other cases of forced migration. We show that labor market competition with natives and selection of migrants are also unlikely to drive our results. Survey evidence suggests that forced migration led to a shift in preferences, away from material possessions and towards investment in a mobile asset – human capital. The effects persist over three generations.

Published: American Economic Review
DOI: https://www.aeaweb.org/articles?id=10.1257/aer.20181518
Research Theme: Economic History
Affiliation: CAGE

373/2018 Karsten Müller and Carlo SchwarzFanning the Flames of Hate: Social Media and Hate Crime

373/2018 Karsten Müller and Carlo Schwarz

This paper investigates the link between social media and hate crime using Facebook data. We study the case of Germany, where the recently emerged right-wing party Alternative für Deutschland (AfD) has developed a major social media presence. We show that right-wing anti-refugee sentiment on Facebook predicts violent crimes against refugees in otherwise similar municipalities with higher social media usage. To further establish causality, we exploit exogenous variation in major internet and Facebook outages, which fully undo the correlation between social media and hate crime. We further find that the effect decreases with distracting news events; increases with user network interactions; and does not hold for posts unrelated to refugees. Our results suggest that social media can act as a propagation mechanism between online hate speech and real-life violent crime.

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Research Theme: Political Economy
Affiliation: CAGE

372/2018 Mirko Draca, Jason Garred, Leanne Stickland and Nele WarrinnierOn Target? The Incidence of Sanctions Across Listed Firms in Iran

372/2018 Mirko Draca, Jason Garred, Leanne Stickland and Nele Warrinnier

A central premise of current international sanctions policy is targeting, that is, concentrating the impact of sanctions on specic, politically influential groups in the sanctioned country. However, many economic factors make it diffcult for senders of sanctions to hit these targets. We offer evidence on the efficacy of targeting in the case of Iran, where sanctions aimed to affect a well-dened set of political entities through their economic interests. Our identication strategy focuses on the process of negotiations for sanctions removal. We find that stock returns of firms owned by targeted political groups and firms unrelated to these groups both react positively to information indicating progress in diplomatic negotiations. However, these effects are signicantly larger for firms owned by targeted groups. This evidence suggests that good news about sanctions relief yielded particularly large economic benefits for targeted political entities, consistent with the `income targeting' goal of sanctions policy against Iran.

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Research Theme: Culture and development
Affiliation: CAGE

371/2018 Philipp Lergetporer, Katharina Werner, and Ludger WoessmannDoes Ignorance of Economic Returns and Costs Explain the Educational Aspiration Gap? Evidence from Representative Survey Experiments

371/2018 Philipp Lergetporer, Katharina Werner, and Ludger Woessmann

The gap in university enrollment by parental education is large and persistent in many countries. In our representative survey, 74 percent of German university graduates, but only 36 percent of those without a university degree favor a university education for their children. The latter are more likely to underestimate returns and overestimate costs of university. Experimental provision of return and cost information significantly increases educational aspirations. However, it does not close the aspiration gap as university graduates respond even more strongly to the information treatment. Persistent effects in a follow-up survey indicate that participants indeed process and remember the information. Differences in economic preference parameters also cannot account for the educational aspiration gap. Our results cast doubt that ignorance of economic returns and costs explains educational inequality in Germany.

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Research Theme: Culture and development
Affiliation: External Research Associate

369/2018 Arthur Blouin and Rocco MacchiavelloStrategic Default in the International Coffee Market

369/2018 Arthur Blouin and Rocco Macchiavello

This paper studies strategic default on coffee pre-financing agreements. In these common arrangements, mills finance coffee production through loans backed by forward-sales contracts with foreign buyers. We model how strategic default introduces a trade-off between insurance and counterparty risk: relative to indexed contracts, fixed-price contracts insure against price swings but create incentives to default when market conditions change. To test for strategic default, we construct contract-specific measures of unanticipated changes in market conditions by comparing spot prices at maturity with the relevant futures prices at the contracting date. Unanticipated rises in market prices increase defaults on fixed price contracts but not on price-indexed ones. We isolate strategic default by focusing on unanticipated rises at the time of delivery after production decisions are sunk. Estimates suggest that roughly half of the observed defaults are strategic. Strategic defaults are more likely in less valuable relationships which, in turn, tend to sign price-indexed contracts to limit strategic default. A model calibration suggests that strategic default causes 15.8% average losses in output, significant dispersion in the marginal product of capital and sizeable negative externalities on supplying farmers.

Published: The Quarterly Journal of Economics
DOI: https://doi.org/10.1093/qje/qjz004
Research Theme: Culture and development
Affiliation: External Research Associate

370/2018 Sharun W. Mukand and Dani RodrikThe Political Economy of Ideas

370/2018 Sharun W. Mukand and Dani Rodrik

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (interests only) approach to political economy. We distinguish between two kinds of ideational politics - the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy `memes' (narratives, cues, framing) that shift beliefs about how the world works or a person's belief of who he is (i.e. identity). Our framework identies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also 'bite' the interests that helped propagate them in the first instance.

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Research Theme: Culture and development
Affiliation: CAGE

368/2018 Lakshmi Iyer and Anandi ManiThe Road Not Taken: Gender Gaps along Paths to Political Power

368/2018 Lakshmi Iyer and Anandi Mani

Using an original survey conducted in India’s largest state, we offer systematic evidence on the gender gaps in a rich set of electoral and non-electoral participation metrics. We find that gender gaps in non-electoral forms of participation (such as involvement in public petitions, interactions with public officials and attendance of village meetings) are larger than those in election-related activities, including political candidacy. The gender gaps in political participation persist even after we account for women’s poorer knowledge of political institutions, self-assessment of leadership skills, literacy rates and asset ownership, as well as constraints on their mobility and voice in household decisions. Using an Oaxaca-Blinder decomposition approach, we find that bringing women’s attributes on par with men would bridge less than half the gender gap. This suggests that external factors, such as the role played by voters, parties or societal groups, may constitute important barriers to women’s political participation. The presence of a woman leader in the village increases women’s propensity to meet with government officials, but is not enough to close the gender gap. Our evidence points to the need to consider a wider set of policy tools beyond quotas to encourage women’s civic and political engagement.

Published: World Development
DOI: https://doi.org/10.1016/j.worlddev.2019.03.004
Research Theme: Culture and development
Affiliation: External Research Associate

367/2018 Lorenzo Casaburi and Rocco MacchiavelloFirm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

367/2018 Lorenzo Casaburi and Rocco Macchiavello

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce field evidence of willingness to pay for commitment. Infrequent payments may naturally provide commitment for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: i) farmers are willing to incur sizable costs to receive infrequent payments and demand for commitment is an important driver of this preference; ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments; iii) in such a market, the effects of price increases on sales depend on both buyer credibility and payment frequency. Infrequent payments are common in many goods and labor markets, but they may not be competitively offered when contracts are not enforceable.

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Research Theme: Culture and development
Affiliation: External Research Associate

366/2018 Sascha O. Becker and Thiemo FetzerWhy an EU Referendum? Why in 2016?

366/2018 Sascha O. Becker and Thiemo Fetzer

The outcome of the UK’s Brexit Referendum has been blamed on political factors, such as concerns about sovereignty, and economic factors such as migration, and trade integration. Analyses of the cross-sectional referendum voting pattern cannot explain how anti-EU sentiment built up over time. Since UKIP votes in the 2014 EU Parliament elections are the single most important predictor of the Vote Leave share, understanding the rise of UKIP might help to explain the role of political and economic factors in the build-up of Brexit. This paper presents new stylized facts suggesting that UKIP votes in local, national and European elections picked up dramatically in areas with weak socio-economic fundamentals, but only after 2010, at the expense of the Conservatives, and partly also Labour. The timing suggests that the Government’s austerity measures might have been a crucial trigger that helped to convert economic grievances into UKIP votes, putting increasing pressure on the Conservatives to hold the EU Referendum.

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Research Theme: Political Economy
Affiliation: CAGE

365/2018 Mariaelisa Epifanio and Vera E. TroegerBargaining over Maternity Pay: Evidence from UK Universities

365/2018 Mariaelisa Epifanio and Vera E. Troeger

The generosity of maternity pay has been shown to be an important factor for mothers’ attachment to the labour market. In the UK we can observe that the generosity of maternity leaves across universities varies greatly: some universities top up the statutory maternity pay with longer and better paid leaves, others are either less generous or only entitle academic women to the legal minimum. We want to understand why this is the case. Therefore, this paper examines both theoretically and empirically how higher education employers decide about the generosity of the offered occupational maternity pay. We use a bargaining approach to model the supply and demand side of generous maternity benefits in universities with different characteristics and test the implications with a generalized negative binomial model. We find that universities’ income does not account for this variation while differences in terms of costs and benefits for employers do. Most importantly, our results show that more research intense universities with a higher previous share of female professors provide more generous maternity pay. We offer a range of explanations for these findings.

Published: Journal of Public Policy
DOI: https://doi.org/10.1017/S0143814X19000059
Research Theme: Political Economy
Affiliation: CAGE

364/2018 Juliana Salomao and Liliana VarelaExchange Rate Exposure and Firm Dynamics

364/2018 Juliana Salomao and Liliana Varela

This paper develops a firm-dynamics model with endogenous currency debt composition to study financing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. There is cross-sectional heterogeneityinthesedecisionsintwodimensions. First, thereisselectionintoforeigncurrencyborrowing, as only productive firms employ it. Second, there is heterogeneity in firms’ share of foreign currency loans, driven by their potential growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact.

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Research Theme: Political Economy
Affiliation: CAGE

363/2018 R.W. Davies, Mark Harrison, Oleg Khlevniuk and Stephen G. WheatcroftThe Soviet economy: the late 1930s in historical perspective

363/2018 R.W. Davies, Mark Harrison, Oleg Khlevniuk and Stephen G. Wheatcroft

This paper is draft of the concluding chapter of The industrialisation of Soviet Russia,vol.7:The Soviet economyand the approach of war,1937– 1939, in preparation for publication by Palgrave Macmillan. We consider the development of the Soviet economy over the period of the series, that is, from the launching of the first five-year plan and the collectivisation of agriculture to the outbreak of the Second World War. We review, in turn, the pattern of forced industrialisation, the measurement and mismeasurement of economic progress, the extraordinary militarisation of a mobilised society and economy, the emergence of the Soviet Union as a global military power, and the scope for reforms within the economic system that Stalin created and ruled over.

Published: The Industrialisation of Soviet Russia Volume 7
DOI: https://link.springer.com/book/10.1057/978-1-137-36238-4
Research Theme: Economic History
Affiliation: CAGE

362/2018 Peter Sandholt Jensen, Markus Lampe, Paul Sharp and Christian Volmar Skovsgaard‘Getting to Denmark’: the Role of Elites for Development

362/2018 Peter Sandholt Jensen, Markus Lampe, Paul Sharp and Christian Volmar Skovsgaard

We explore the role of elites for development and in particular for the spread of cooperative creameries in Denmark in the 1880s, which was a major factor behind that country’s rapid economic catch-up. We demonstrate empirically that the location of early proto-modern dairies, so-called hollænderier, introduced onto traditional landed estates as part of the Holstein System of agriculture by landowning elites from the Duchies of Schleswig and Holstein in the eighteenth century, can explain the location of cooperative creameries in 1890, more than a century later, after controlling for other relevant determinants. We interpret this as evidence that areas close to estates which adopted the Holstein System witnessed a gradual spread of modern ideas from the estates to the peasantry. Moreover, we identify a causal relationship by utilizing the nature of the spread of the Holstein System around Denmark, and the distance to the first estate to introduce it, Sofiendal. These results are supported by evidence from a wealth of contemporary sources and are robust to a variety of alternative specifications.

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Research Theme: Economic History
Affiliation: External Research Associate

361/2018 Redzo Mujcic and Andrew J. OswaldIs Envy Harmful to a Society’s Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults

361/2018 Redzo Mujcic and Andrew J. Oswald

Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p <0.001). Third, no evidence is found for the idea that envy acts as a useful motivator. Greater envy is associated with slower -- not higher -- growth of psychological well-being in the future. Nor is envy a predictor of later economic success. Fourth, the longitudinal decline of envy leaves unaltered a U-shaped age pattern of well-being from age 20 to age 70. These results are consistent with the idea that society should be concerned about institutions that stimulate large-scale envy.

Published: Social Science & Medicine
DOI: https://doi.org/10.1016/j.socscimed.2017.12.030
Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

360/2018 David G. Blanchflower and Andrew J. OswaldUnhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham’s Happiness for All?

360/2018 David G. Blanchflower and Andrew J. Oswald

In Happiness for All?, Carol Graham raises disquieting ideas about today’s United States. The challenge she puts forward is an important one. Here we review the intellectual case and offer additional evidence. We conclude broadly on the author’s side. Strikingly, Americans appear to be in greater pain than citizens of other countries, and most subgroups of citizens have downwardly trended happiness levels. There is, however, one bright side to an otherwise dark story. The happiness of black Americans has risen strongly since the 1970s. It is now almost equal to that of white Americans.

Published: Journal of Economic Literature
DOI: https://www.aeaweb.org/articles?id=10.1257/jel.20171492
Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

359/2018 David Ronayne and Daniel SgroiIgnoring Good Advice

359/2018 David Ronayne and Daniel Sgroi

We ran an experiment where 1,503 subjects (advisees) completed tasks, and then had the choice to submit either their own score or that of other, high-scoring subjects (advisers). Good advice was ignored: about 25% of the time, advisees chose to submit their own score instead of higher-scoring advisers, reducing their payoff. When the adviser was superior in skill (rather than luck), good advice was ignored more often. When the adviser was relatively highly paid, subjects were less likely to make use of them. We offer an explanation of the data focused on two behavioral forces: envy and the sunk cost fallacy. The role of envy was complex: more envious advisees, as measured using a dispositional envy scale, opted to follow advisers more often in the skill-based task revealing a positive, motivational effect of envy. However, higher adviser remuneration reduced this effect, demonstrating a negative side of envy. Susceptibility to the sunk cost fallacy had a negative impact on the uptake of good advice. This is consistent with the idea that subjects feel resistant to changing their answers when they put in effort to formulate them. We also present findings from a survey of 3,096 UK voters who took part in the national referendum on EU membership, which are consistent with some of our experimental

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Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

358/2018 Lucie GadenneDo Ration Shop Systems Increase Welfare? Theory and an Application to India

358/2018 Lucie Gadenne

In many developing countries households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether these countries’ characteristics justify the use of such ration shop systems. I find an equity-efficiency trade-off: an efficiencymaximizing government will never use ration shops but a welfare-maximizing one might, to redistribute and provide insurance. Welfare gains from introducing ration shops are highest for necessity goods with high price risk. I calibrate the model for India and find that ration shops are indeed welfare-improving for three of the four goods sold through the system today.

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Research Theme: Culture and development
Affiliation: CAGE

357/2018 Marc Piopiunik, Guido Schwerdt, Lisa Simon, and Ludger WoessmannSkills, Signals, and Employability: An Experimental Investigation

357/2018 Marc Piopiunik, Guido Schwerdt, Lisa Simon, and Ludger Woessmann

As skills of labor-market entrants are usually not directly observed by employers, individuals acquire skill signals. To study which signals are valued by employers, we simultaneously and independently randomize a broad range of skill signals on pairs of resumes of fictitious applicants among which we ask a large representative sample of German human-resource managers to choose. We find that signals in all three studied domains – cognitive skills, social skills, and maturity – have a significant effect on being invited for a job interview. Consistent with the relevance, expectedness, and credibility of different signals, the specific signal that is effective in each domain differs between apprenticeship applicants and college graduates. While GPAs and social skills are significant for both genders, males are particularly rewarded for maturity and females for IT and language skills. Older HR managers value school grades less and other signals more, whereas HR managers in larger firms value college grades more.

Published: European Economic Review
DOI: https://doi.org/10.1016/j.euroecorev.2020.103374
Research Theme: Culture and development
Affiliation: External Research Associate

356/2018 Konstantin Büchel and Maximilian v. EhrlichCities and the Structure of Social Interactions: Evidence from Mobile Phone Data

356/2018 Konstantin Büchel and Maximilian v. Ehrlich

Social interactions are considered pivotal to agglomeration economies. We explore a unique dataset on mobile phone calls to examine how distance and population density shape the structure of social interactions. Exploiting an exogenous change in travel times, we find that distance is highly detrimental to interpersonal exchange. We show that, despite distance-related costs, urban residents do not benefit from larger networks when spatial sorting is accounted for. Higher density rather generates a more efficient network in terms of matching and clustering. These differences in network structure capitalize into land prices, corroborating the hypothesis that agglomeration economies operate via network efficiency.

Published: Journal of Urban Economics
DOI: https://doi.org/10.1016/j.jue.2020.103276
Research Theme: Culture and development
Affiliation: External Research Associate

355/2018 Bishnupriya GuptaFalling Behind and Catching up: India’s Transition from a Colonial Economy

355/2018 Bishnupriya Gupta

At midnight of 15th August 1947, India became an independent country. It ended 200 years of colonial rule under the British Empire. It altered the borders of India. Two distinct regions from the Western and the Eastern sides were carved out as a separate political entity of the state of Pakistan.2 Indian independence also led to a major change in the direction of economic policy. From a globalized economy integrated into the British Empire, the next 30 years saw a retreat from policies of free trade and capital flows. The newly independent state embraced the idea of development through industrialization. In an economy, where capital was scarce and entrepreneurship was concentrated in a few communities, the state stepped in to fill the gap. India was not unusual in this. Many parts of the underdeveloped world, both colonies in Asia and independent countries in Latin America moved towards protectionist policies to develop an industrial sector. This was not simply the infant industry argument, which had characterized industrialization in the United States and Europe 19th century. The role of the state in the newly independent countries, in the second half of the 20th century, was developmental and directly interventionist. While the industrialized world in Europe and North America began to rebuild the institutions of free trade after 1945, the underdeveloped world moved in a different direction, where the idea of a “Developmental State” became an intrinsic part of policy making. This paper will take a long run view of Indian economic development. I will start with Mughal India under the emperor Akbar in 1600. This was the high point of economic prosperity measured by average living standards. I will look at the changes in the economy over the next 400 years, first in response to increasing trade with Europe through the global network of European trading companies, then through the formal political rule of the East India Company.

Published: The Economic History Review
DOI: https://doi.org/10.1111/ehr.12849
Research Theme: Economic History
Affiliation: CAGE

354/2018 Sascha O. Becker, Stephan Heblich and Daniel M. SturmThe Impact of Public Employment: Evidence from Bonn

354/2018 Sascha O. Becker, Stephan Heblich and Daniel M. Sturm

This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model.

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Research Theme: Culture and development
Affiliation: CAGE

353/2017 Fernanda Brollo, Pedro Forquesato and Juan Carlos GozziTo the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil

353/2017 Fernanda Brollo, Pedro Forquesato and Juan Carlos Gozzi

We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.

Published:
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Research Theme: Political Economy
Affiliation: CAGE

352/2017 Aditi Dimri and François ManiquetPoverty measurement (in India): Defining group-specific poverty lines or taking preferences into account?

352/2017 Aditi Dimri and François Maniquet

We study absolute income poverty measurement when agents differ in preferences and face different prices. The difficulty arising from price heterogeneity is typically solved using equivalent income, but the choice of the reference price vector remains arbitrary. We provide a way to solve this arbitrariness problem by making the poverty measure consistent with preferences: an agent qualifies as poor if and only if she prefers the poverty line bundle to her current consumption bundle. We then prove that defining group/region specific poverty lines is another way of recovering consistency with preferences, provided one uses the headcount ratio. Comparing the resulting three approaches using Indian data, we find that the different approaches leads to different poverty conclusions. We show that not taking preferences into account leads to severely underestimating urban poverty.

Published: The Journal of Economic Inequality
DOI: https://doi.org/10.1007/s10888-019-09434-6
Research Theme: Culture and development
Affiliation: CAGE

351/2017 Mirko Draca, Theodore Koutmeridis and Stephen MachinThe Changing Returns to Crime: Do Criminals Respond to Prices?

351/2017 Mirko Draca, Theodore Koutmeridis and Stephen Machin

In economic models of crime individuals respond to changes in the potential value of criminal opportunities. We analyse this issue by estimating crime-price elasticities from detailed data on criminal incidents in London between 2002 and 2012. The unique data feature we exploit is a detailed classification of what goods were stolen in reported theft, robbery and burglary incidents. We first consider a panel of consumer goods covering the majority of market goods stolen in the crime incidents and find evidence of significant positive price elasticities. We then study a particular group of crimes that have risen sharply recently as world prices for them have risen, namely commodity related goods (jewellery, fuel and metal crimes), finding sizable elasticities when we instrument local UK prices by exogenous shifts in global commodity prices. Finally, we show that changes in the prices of loot from crime have played a role in explaining recent crime trends.

Published: The Review of Economic Studies
DOI: https://doi.org/10.1093/restud/rdy004
Research Theme: Political Economy
Affiliation: CAGE

350/2017 Nicholas CraftsThe Postwar British Productivity Failure

350/2017 Nicholas Crafts

British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporate-governance and industrial-relations problems in the British 'variety of capitalism' which sustained low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.

Published: Erasmus Forum Historical and Cultural Research Bulletin
DOI: https://www.erasmusforum.co.uk/bulletins
Research Theme: Economic History
Affiliation: CAGE

349/2017 Tobias Böhmelt and Vincenzo BoveHow Migration Policies Moderate the Diffusion of Terrorism

349/2017 Tobias Böhmelt and Vincenzo Bove

There is an ongoing debate among practitioners and scholars about the security consequences of transnational migration. Yet, existing work has not yet fully taken into account the policy instruments states have at their disposal to mitigate these, and we lack reliable evidence for the effectiveness of such measures. The following research addresses both shortcomings as we analyze whether and to what extent national migration policies affect the diffusion of terrorism via population movements. Spatial analyses report robust support for a moderating influence of states’ policies: while larger migration populations can be a vehicle for the diffusion of terrorism from one state to another, this only applies to target countries with extremely open controls and lax regulations. This research sheds new light on the security implications of population movements, and it crucially adds to our understanding of governments’ instruments for addressing migration challenges as well as their effectiveness.

Published: European Journal of Political Research
DOI: https://doi.org/10.1111/1475-6765.12339
Research Theme: Culture and development
Affiliation: External Research Associate

348/2017 Miguel Almunia and Gonzalo GaetePoints To Save Lives: The Effects of Traffic Enforcement Policies on Road Fatalities

348/2017 Miguel Almunia and Gonzalo Gaete

Traffic accidents cause more than one million annual deaths worldwide and yield substantial economic costs to society. This paper studies the effects of a penalty points system (PPS) introduced in Spain in 2006. We find a 20% decrease in cumulative road fatalities in the five years after the reform, compared to a synthetic control group constructed using a weighted average of other European countries. Using estimates of the value of a statistical life, we calculate that the PPS yielded a net economic benefit of €4.6 billion ($6 billion) over this period, equivalent to 0.43% of Spain's GDP.

Published:
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Research Theme: Culture and Development
Affiliation: CAGE

347/2017 Eugenio Proto, Daniel Sgroi and Mahnaz NazneenHappiness and Cooperation

347/2017 Eugenio Proto, Daniel Sgroi and Mahnaz Nazneen

According to existing research across several disciplines (management, psychology, economics and neuroscience), positive mood can have positive effects, engendering more altruistic, open and helpful behaviour, but can also work though a more negative channel by inducing inward-orientation, assertiveness, and reduced use of information. This leaves the impact on cooperation in interactive and strategic situations unclear. We find evidence from 490 participants in a laboratory experiment suggesting that participants in an induced positive mood cooperate less in a repeated Prisoner's Dilemma than participants in a neutral setting. This is robust to the number of repetitions or the inclusion of pre-play communication. In order to understand why positive mood might damage the propensity to cooperate, we conduct a language analysis of the pre-play communication between players. This analysis indicates that subjects in a more positive mood use more inward-oriented and more negative language which supports the negative channel.

Published: Journal of Economic Behavior & Organisation
DOI: https://doi.org/10.1016/j.jebo.2019.10.006
Research Theme: Behavioural economics and wellbeing
Affiliation: CAGE

346/2017 Valentin SeidlerCopying informal Institutions: The role of British colonial officers during the decolonization of British Africa

346/2017 Valentin Seidler

Institutional reforms in developing countries often involve copying institutions from developed countries. Such institutional copying is likely to fail, if formal institutions alone are copied without the informal institutions on which they rest in the originating country. This paper investigates the role of human actors in copying informal institutions. At independence, all British African colonies imported the same institution intended to safeguard the political neutrality of their civil services. While the necessary formal provisions were copied into the constitutions of all African colonies, the extent to which they were put into practice varies. The paper investigates the connection between the variation in the legal practice and the presence of British colonial officers after independence. A natural experiment around compensation payments to British officers explains the variation in the number of officers who remained in service after independence. Interviews with retired officers suggest that the extended presence of British personnel promoted the acceptance of imported British institutions among local colleagues.

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Research Theme: Economic History
Affiliation: External Research Associate

345/2017 Valentin SeidlerInstitutional copying in the 20th century: The role of 14,000 British colonial officers

345/2017 Valentin Seidler

Did individual British officers determine the institutional development of former colonies? The article presents a new research program into institutional reform and economic development based on a newly established dataset of over 14,000 biographical entries of senior colonial officers in 54 British colonies between 1939 and 1966. The rich data permit a new methodological approach towards the question of how institutions are copied into countries with a radical focus on the individual actors involved in the institutional reforms before independence. The article discusses fundamental background information on the British colonial service in the 20th century and presents first preliminary analyses from within the new research agenda.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

344/2017 Alexander Klein and Sheilagh OgilvieWas Domar Right? Serfdom and Factor Endowments in Bohemia

344/2017 Alexander Klein and Sheilagh Ogilvie

Do factor endowments explain serfdom? Domar (1970) conjectured that high land-labor ratios caused serfdom by increasing incentives to coerce labor. But historical evidence is mixed and quantitative analyses are lacking. Using the Acemoglu-Wolitzky (2011) framework and controlling for political economy variables by studying a specific serf society, we analyze 11,349 Bohemian serf villages in 1757. The net effect of higher land-labor ratios was indeed to increase coercion. The effect greatly increased when animal labor was included, and diminished as land-labor ratios rose. Controlling for other variables, factor endowments significantly influenced serfdom. Institutions, we conclude, are shaped partly by economic fundamentals.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

343/2017 Kimberley Scharf, Sarah Smith and Mark Ottoni-WilhelmLift and Shift: The Effect of Fundraising Interventions in Charity Space and Time

343/2017 Kimberley Scharf, Sarah Smith and Mark Ottoni-Wilhelm

Fundraising interventions may lift donations and/or shift their composition and timing, making it important to study their effect across charity space and time. We find that major fundraising appeals lift total donations, but surprisingly shift donations to other charities across time. To explain this, we develop a two-period model with two sources of warm glow that relates donation responses to underlying preference parameters. A dynamic framework, combined with rich data, provides opportunities to identify substitutability/complementarity in warm glow. The observed pattern is possible only if the two sources of warm glow are substitutes and warm glow is intertemporally substitutable.

Published:
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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

342/2017 Federica Liberini, Andrew J Oswald, Eugenio Proto and Michela RedoanoWas Brexit Caused by the Unhappy and the Old?

342/2017 Federica Liberini, Andrew J Oswald, Eugenio Proto and Michela Redoano

On 23 June 2016, the United Kingdom voted to leave the European Union (so-called ‘Brexit’). This paper uses newly released information, from the Understanding Society data set, to examine the characteristics of individuals who were for and against Brexit. Two new findings emerge. First, unhappy feelings contributed to Brexit. However, contrary to commonly heard views, the key channel of influence was not through general dissatisfaction with life. It was through a person’s narrow feelings about his or her own financial situation. Second, despite some commentators’ guesses, Brexit was not caused by old people. Only the very young were substantially pro-Remain.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

341/2017 Gerben Bakker, Nicholas Crafts and Pieter WoltjerThe Sources of Growth in a Technologically Progressive Economy: the United States, 1899-1941

341/2017 Gerben Bakker, Nicholas Crafts and Pieter Woltjer

We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better-measured labor quality, and find TFP-growth was lower than previously thought, broadly based across sectors, and strongly variant intertemporally. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four ‘great inventions'. Third, TFP-growth was not driven indirectly by spillovers from great inventions such as electricity. Instead, the creative-destruction-friendly American innovation system was the main productivity driver.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/uez002
Research Theme: Economic History
Affiliation: CAGE

340/2017 Marcus Miller, Lei Zhang and Songklod RastapanaSubprime assets and financial crisis: theory, policy and the law

340/2017 Marcus Miller, Lei Zhang and Songklod Rastapana

In this paper, we explore three specific aspects of the US subprime crisis, using both theoretical models and the outcome of subsequent legal proceedings. First, the role of pecuniary externalities in amplifying shocks to the quality of MBS held by Investment Banks. Second, the role of adverse selection in the marketing of such assets by Investment Banks; and third the role of financial panic in making shadow banking disaster prone. The relevance of these differing perspectives is attested by the nature of state support and, more especially, the findings of law courts. Janet Yellen has recently argued that the vulnerabilities within the US financial system in the mid-2000s were "numerous and familiar from past financial panics". That the aforementioned threats to stability should be complements and not substitutes is of more than technical interest. It helps to show why the US financial system was so exposed to radical failure.

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Research Theme: Political Economy
Affiliation: CAGE

339/2017 Nicholas Crafts and Alexander KleinA Long-Run Perspective on the Spatial Concentration of Manufacturing Industries in the United States

339/2017 Nicholas Crafts and Alexander Klein

We construct spatially-weighted indices of the geographic concentration of U.S. manufacturing industries during the period 1880 to 1997 using data from the Census of Manufactures and Bureau of Labor Statistics. Several important new results emerge from this exercise. First, we find that average spatial concentration was much lower in the late 20th- than in the late 19th - century and that this was the outcome of a continuing reduction over time. Second, the persistent tendency to greater spatial dispersion was characteristic of most manufacturing industries. Third, even so, economically and statistically significant spatial concentration was pervasive throughout this period.

Published:
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Research Theme: Economic History
Affiliation: CAGE

338/2017 Aleksandra Katolik and Andrew J. OswaldAntidepressants for Economists and Business-School Researchers: An Introduction and Review

338/2017 Aleksandra Katolik and Andrew J. Oswald

The antidepressant pill is an important modern commodity. Its growing role in the world has been largely ignored by researchers in economics departments and business schools. Scholars may be unaware how many citizens and employees now take these pills. Here we review some of the social-science literature on the topic. We discuss research on the impact of advertising upon antidepressant consumption, the link between antidepressants and the human ‘midlife crisis’, and evidence on how antidepressants are connected to crime, suicide, and financial hardship. We argue that antidepressants will eventually have to be modelled as a new form of consumption that lies in the currently grey area between medicines and consumer goods. This topic demands scholarly and societal attention.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

337/2017 David G. Blanchflower and Andrew J. OswaldDo Humans Suffer a Psychological Low in Midlife? Two Approaches (With and Without Controls) in Seven Data Sets

337/2017 David G. Blanchflower and Andrew J. Oswald

Using seven recent data sets, covering 51 countries and 1.3 million randomly sampled people, the paper examines the pattern of psychological well-being from approximately age 20 to age 90. Two conceptual approaches to this issue are possible. Despite what has been argued in the literature, neither is the ‘correct’ one, because they measure different things. One studies raw numbers on well-being and age. This is the descriptive approach. The second studies the patterns in regression equations for well-being (that is, adjusting for other influences). This is the ceteris-paribus analytical approach. The paper applies each to large cross-sections and compares the patterns of life-satisfaction and happiness. Using the first method, there is evidence of a midlife low in five of the seven data sets. Using the secondmethod, all seven data sets produce evidence consistent with a midlife low. The scientific explanation for the approximate U-shape currently remains unknown.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

336/2017 Stefan Bauernschuster, Anastasia Driva, and Erik HornungBismarck's Health Insurance and the Mortality Decline

336/2017 Stefan Bauernschuster, Anastasia Driva, and Erik Hornung

We investigate the impact on mortality of the world's rst compulsory health insurance, established by Otto von Bismarck, Chancellor of the German Empire, in 1884. Employing a multi-layered empirical setup, we draw on international comparisons and difference-in-differences strategies using Prussian administrative panel data to exploit differences in eligibility for insurance across occupations. All approaches yield a consistent pattern suggesting that Bismarck's Health Insurance generated a significant mortality reduction. The results are largely driven by a decline of deaths from infectious diseases. We present prima facie evidence that diffusion of new hygiene knowledge through physicians was an important channel.

Published: Journal of the European Economic Association
DOI: https://doi.org/10.1093/jeea/jvz052
Research Theme: Economic History
Affiliation: External CAGE Associate

335/2017 Miguel Almunia, Ben Lockwood and Kimberley ScharfMore Giving of More Givers? The Effects of Tax Incentives on Charitable Donations in the UK

335/2017 Miguel Almunia, Ben Lockwood and Kimberley Scharf

This paper estimates the tax-price elasticity of giving using UK administrative tax return data, exploiting variation from a large tax reform. We estimate both the in- tensive and extensivemargin elasticity, using a novel instrumental variables strategy. Then, we derive new conditions to evaluate the welfare consequences of changes in the generosity of the subsidy to donations. We find a small intensive-margin elasticity of -0.2 and a substantial extensive-margin elasticity of -0.8, yielding a total elasticity of about -1. These estimates mask considerable heterogeneity: high-income individ- uals respond more on the intensive margin, while the extensive-margin response is stronger among low-income taxpayers.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

334/2017 Boaz Abramson and Moses ShayoGrexit vs. Brexit: International Integration under Endogenous Social Identities

334/2017 Boaz Abramson and Moses Shayo

International integration is not driven purely by economic considerations but may also be affected by identity politics. We propose a simple framework to study the effects of identity on integration, allowing identities themselves to be endogenous (a German citizen may identify as German but may also identify as European). We find that contrary to widespread intuitions, a robust union does not require that all members share a common identity. Furthermore, while national identification in the periphery leads to premature breakup, a common identity can sometimes lead to excessively large unions. Finally, a union is more fragile when periphery countries have high ex-ante status, whereas low-status countries are less likely to secede, even when between-country economic differences are large and union policies impose significant hardship. Brexit is more likely than Grexit.

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Research Theme: Culture and development
Affiliation: External CAGE Associate

333/2017 Yannick DuprazFrench and British Colonial Legacies in Education: Evidence from the Partition of Cameroon

333/2017 Yannick Dupraz

I use the partition of Cameroon between France and the UK after WWI and its reunification after independence to investigate colonial legacies in education. Using border discontinuity analysis, I find that Cameroonians born in the 1970s are 9 percentage points more likely to have completed high school if they were born in the former British part. French and British Cameroon started diverging after partition, but the British advantage disappeared when the French increased education expenditure in the 1950s. The resurgence of a British advantage is explained by the French legacy of high repetition rates and their detrimental effect on dropout.

Published: The Journal of Economic History
DOI: https://doi.org/10.1017/S0022050719000299
Research Theme: Economic History
Affiliation: CAGE

332/2017 Mark HarrisonCounting the Soviet Union’s War Dead: Still 26-27 Million

332/2017 Mark Harrison

A new estimate of the Soviet population loss in World War II, by Russian historian Igor’ Ivlev, is 42 million. This is 15-16 million more than the previous estimate of 26-27 million. The latter, by Russian demographers Andreev, Darskii, and Khar’kova, has been widely accepted for a quarter of a century. I examine the new estimate, show its place in the Soviet demographic accounts side by side with the old one, contrast their sources and methods, and find that the new figure is without foundation. The previous figure stands. On existing knowledge, the Soviet war dead were 26-27 million.

Published: Europe-Asia Studies
DOI: https://doi.org/10.1080/09668136.2018.1547366
Research Theme: Economic History
Affiliation: CAGE

331/2017 James Fenske and Namrata KalaLinguistic Distance and Market Integration in India

331/2017 James Fenske and Namrata Kala

We collect data on grain and salt prices, as well as language, for more than 200 South Asian markets in the 19th and early 20th centuries. Conditional on a rich set of controls and fixed effects, we find that linguistically distant markets are less integrated as measured by the degree of price correlation. While linguistically distant markets exhibit greater genetic distance, greater differences in literacy, and fewer railway connections, these factors are not sufficient statistics for the negative correlation between linguistic distance and market integration. Our results indicate that a one standard deviation increase in linguistic distance predicts a reduction in the price correlation between two markets of 0.121 standard deviations for wheat, 0.167 standard deviations for salt, and 0.088 standard deviations for rice. These differences are substantial relative to other factors such as physical distance that hinder market integration.

Published:
DOI:
Research Theme: Culture and development
Affiliation: CAGE

330/2017 Thomas Le Barbanchon, Roland Rathelot and Alexandra RouletUnemployment Insurance and Reservation Wages: Evidence from Administrative Data

330/2017 Thomas Le Barbanchon, Roland Rathelot and Alexandra Roulet

Although the reservation wage plays a central role in job search models, empirical evidence on the determinants of reservation wages, including key policy variables such as unemployment insurance (UI), is scarce. In France, unemployed people must declare their reservation wage to the Public Employment Service when they register to claim UI benefits. We take advantage of these rich French administrative data and of a reform of UI rules to estimate the effect of the potential benefit duration (PBD) on reservation wages and on other dimensions of job selectivity, using a difference-in-difference strategy. We cannot reject that the elasticity of the reservation wage with respect to PBD is zero. Our results are precise and we can rule out elasticities larger than 0.006. Furthermore, we do not find any significant effects of PBD on the desired number of hours, duration of labor contract and commuting time/distance. The estimated elasticity of actual benefit duration with respect to PBD of 0.3 is in line with the consensus in the literature. Exploiting a regression discontinuity design as an alternative identification strategy, we find similar results.

Published: Journal of Public Economics
DOI: http://dx.doi.org/10.1016/j.jpubeco.2017.05.002
Research Theme: Culture and Development
Affiliation: CAGE

329/2017 Nicholas Crafts and Terence C. MillsTrend TFP Growth in the United States: Forecasts versus Outcomes

329/2017 Nicholas Crafts and Terence C. Mills

We analyze TFP growth in the U.S. business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first order autoregression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 to 1.0 per cent per year over the last 50 years. Nevertheless, recent trends are not a good guide to actual medium-term TFP growth. This exhibits substantial variations and is quite unpredictable. Technooptimists should not give best to secular stagnationists simply because recent TFP growth has been weak

Published: National Institute Economic Review
DOI: https://doi.org/10.1177/002795011724200115
Research Theme: Economic History
Affiliation: CAGE

328/2017 Charlotte Cavaille and Jeremy FerwerdaHow Distributional Conflict over Public Spending Drives Support for Anti-Immigrant Parties

328/2017 Charlotte Cavaille and Jeremy Ferwerda

To what extent does immigration drive support for anti-immigrant populist parties and candidates? Previous research has hypothesized the existence of a welfare channel, in which individuals exposed to the potential fiscal costs of immigration, in the form of higher taxes and lower benefits, will be more supportive of anti-immigration parties. But evidence in support of this argument is scant. This paper builds on existing work in two ways. Theoretically, we distinguish between the cash and the in-kind components of public transfers, and argue that the latter are especially prone to generating distributional conflicts. Empirically, we leverage an EU legal directive that resulted in an exogenous increase in the intensity of competition between immigrants and natives over public housing in Austria. Our findings indicate that support for anti-immigrant parties is highly responsive to perceived scarcity resulting from immigrant receipt of in-kind benefits. More broadly, the findings suggest that the confluence of austerity measures and free movement in the EU may explain the far-right’s recent electoral gains beyond its historic voting bloc.

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Research Theme: Political Economy
Affiliation: External Research Associate

327/2017 Mark HarrisonThe Soviet Economy, 1917-1991: Its Life and Afterlife

327/2017 Mark Harrison

In terms of economic development, Russia before and after the Soviet era was just an average economy. If the Soviet era is distinguished, it was not by economic growth or its contribution to human development, but by the use of the economy to build national power over many decades. In this respect, the Soviet economy was a success. It was also a tough and unequal environment in which to be born, live, and grow old. The Soviet focus on building national capabilities did improve opportunities for many citizens. Most important were the education of women and the increased survival of children. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.

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Research Theme: Economic History
Affiliation: CAGE

326/2017 Franziska Hampf and Ludger WoessmannVocational vs. General Education and Employment over the Life-Cycle: New Evidence from PIAAC

326/2017 Franziska Hampf and Ludger Woessmann

It has been argued that vocational education facilitates the school-to-work transition but reduces later adaptability to changing environments. Using the recent international PIAAC data, we confirm such a trade-off over the life-cycle in a difference-in-differences model that compares employment rates across education type and age. An initial employment advantage of individuals with vocational compared to general education turns into a disadvantage later in life. Results are strongest in apprenticeship countries that provide the highest intensity of industry-based vocational education.

Published: CESifo Economic Studies
DOI: http://dx.doi.org/10.1093/cesifo/ifx012
Research Theme: Culture and Development
Affiliation: External Research Associate

325/2017 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta and Masanori TakashimaJapan and the Great Divergence, 730-1874

325/2017 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta and Masanori Takashima

Abstract: Japanese GDP per capita grew at an annual rate of 0.08 per cent between 730 and 1874, but the growth was episodic, with the increase in per capita income concentrated in two periods, 1450-1600 and after 1721, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.

Published: Explorations in Economic History
DOI: https://doi.org/10.1016/j.eeh.2018.11.005
Research Theme: Economic History
Affiliation: CAGE

324/2017 Stephen Broadberry, Hanhui Guan and David Daokui LiChina, Europe and the Great Divergence: A Study in Historical National Accounting, 980-1850

324/2017 Stephen Broadberry, Hanhui Guan and David Daokui Li

Abstract: Chinese GDP per capita fluctuated at a high level during the Northern Song and Ming dynasties before trending downwards during the Qing dynasty. China led the world in living standards during the Northern Song dynasty, but had fallen behind Italy by 1300. At this stage, it is possible that parts of China were still on a par with the richest parts of Europe, but by 1750 the gap was too large to be bridged by regional variation within China and the Great Divergence had already begun before the Industrial Revolution.

Published: The Journal of Economic History
DOI: https://doi.org/10.1017/S0022050718000529
Research Theme: Economic History
Affiliation: CAGE

323/2017 Stephen Broadberry and John WallisGrowing, Shrinking and Long Run Economic Performance: Historical Perspectives on Economic Development

323/2017 Stephen Broadberry and John Wallis

Abstract: Using annual data from the thirteenth century to the present, we show that improved long run economic performance has occurred primarily through a decline in the rate and frequency of shrinking, rather than through an increase in the rate of growing. Indeed, as economic performance has improved over time, the short run rate of growing has typically declined rather than increased. Most analysis of the process of economic development has hitherto focused on increasing the rate of growing. Here, we focus on understanding the forces making for a reduction in the rate of shrinking, drawing a distinction between proximate and ultimate factors. The main proximate factors considered are (1) structural change (2) technological change (3) demographic change and (4) the changing incidence of warfare. We conclude with a consideration of institutional change as the key ultimate factor behind the reduction in shrinking.

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Research Theme: Economic History
Affiliation: CAGE

322/2017 Lorenzo Casaburi and Rocco MacchiavelloFirm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

322/2017 Lorenzo Casaburi and Rocco Macchiavello

Failures in saving markets can spill over into other markets: When producers are saving constrained, trustworthy buyers can offer infrequent delayed payments a saving tool and purchase at a lower price, thus departing from standard trade credit logic. This paper develops a model of this interlinkage and tests it in the context of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support the microfoundations and predictions of the model concerning: i) producers' demand for infrequent payments; ii) heterogeneity across buyers in the ability to supply low frequency payments; iii) a segmented market equilibrium where buyers compete by providing either liquidity or saving services to producers; iv) low supply response to price increases. We provide additional evidence from other settings, including labor markets, and discuss policy implications concerning contract enforcement, nancial access, and market structure.

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Research Theme: Culture and Development
Affiliation: External Research Associate

321/2017 Rocco Macchiavello and Josepa Miquel-FlorensaVertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain

321/2017 Rocco Macchiavello and Josepa Miquel-Florensa

This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by signicant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which rms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.

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Research Theme: Culture and Development
Affiliation: External Research Associate

320/2017 Debin Ma and Jared RubinThe Paradox of Power: Understanding Fiscal Capacity in Imperial China and Absolutist Regimes

320/2017 Debin Ma and Jared Rubin

Tax extraction in Qing China was low relative to Western Europe. It is not obvious why: China was much more absolutist and had stronger rights over property and people. Why did the Chinese not convert their absolute power into revenue? We propose a model, supported by historical evidence, which suggests that i) the center could not ask its tax collecting agents to levy high taxes because it would incentivize agents to overtax the peasantry; ii) the center could not pay agents high wages in return for high taxes because the center had no mechanism to commit to refrain from confiscating the agent’s resources in times of crisis. A solution to this problem was to offer agents a low wage and ask for low taxes while allowing agents to take extra, unmonitored taxes from the peasantry. This solution only worked because of China’s weak administrative capacity due its size and poor monitoring technology. This analysis suggests that low investment in administrative capacity can be an optimal solution for an absolutist ruler since it substitutes for a credible commitment to refrain from confiscation. Our study carries implications for state capacity beyond Imperial China.

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Research Theme: Economic History
Affiliation: External Research Associate

319/2017 Debin MaThe Rise of a Financial Revolution in Republican China in 1900-1937: an Institutional Narrative

319/2017 Debin Ma

This paper surveys the phenomenal transformation of banking and finance, public debt and monetary regimes during 1900-1937, a period of great political instability in Chinese history. To understand why sectors which are often most vulnerable to the security of property rights and contract enforcement, have become the vanguard of growth in such an era of uncertainty, I highlight the role of institutions as seen in the form of a business dominated quasi-political structure that grew outside the formal political sphere. This structure rested on the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. By ensuring the credibility of repayment of government bonds, this financial-fiscal mechanism laid the institutional foundation for the rise of modern Chinese banks, a viable market for public debt and increasing supply of reputable convertible bank notes. My survey sheds new light on some of the most important and controversial issues related to Chinese and global economic history.

Published: Australian Economic History Review
DOI: https://onlinelibrary.wiley.com/doi/abs/10.1111/aehr.12173
Research Theme: Economic History
Affiliation: External Research Associate

318/2017 Morgane Laouénan and Roland RathelotEthnic Discrimination on an Online Marketplace of Vacation Rental

318/2017 Morgane Laouénan and Roland Rathelot

We use data from an online marketplace of vacation rentals (Airbnb) collected in 19 major cities in North America and Europe to measure discrimination against ethnicminority hosts. This market has three interesting features: the existence of a detailed reviewing system, the high frequency of transactions and the panel dimension of the data. Using the fact that ratings provide potential guests with information about the quality of a listing, we build a credible measure of statistical discrimination, following a strategy `a la Altonji and Pierret (2001). Hosts from a minority ethnic group charge 16% less than other hosts in the same cities. Controlling for a rich set of characteristics reduces the ethnic price gap to 3.2%. An additional review increases the daily price more for minority than for majority hosts. Estimating the parameters of a theoretical pricing model, we find that statistical discrimination accounts for most of the price differential: 2.5 percentage points.

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Research Theme: Culture and Development
Affiliation: CAGE

317/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La FerraraLearning about the Enforcement of Conditional Welfare Programs: Evidence from Brazil

317/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La Ferrara

We study the implementation of Bolsa Familia, a program that conditions cash transfers to poor families on children’s school attendance. Using unique administrative data, we analyze how beneficiaries respond to the enforcement of conditionality. Making use of random variation in the day on which punishments are received, we find that school attendance increases after families are punished for past noncompliance. Families also respond to penalties experienced by peers: a child’s attendance increases if her own classmates, but also her siblings’ classmates (in other grades or schools), experience enforcement. As the severity of penalties increases with repeated noncompliance, households’ response is larger when peers receive a penalty that the family has not (yet) received. We thus find evidence of spillover effects and learning about enforcement.

Published:
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Research Theme: Political Economy
Affiliation: CAGE

316/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La FerraraThe Political Economy of Program Enforcement: Evidence from Brazil

316/2017 Fernanda Brollo, Katja Maria Kaufmann and Eliana La Ferrara

Do politicians manipulate the enforcement of conditional welfare programs to influence electoral outcomes? We study the Bolsa Familia Program (BFP) in Brazil, which provides a monthly stipend to poor families conditional on school attendance. Repeated failure to comply with this requirement results in increasing penalties. First, we exploit random variation in the timing when beneciaries learn about penalties for noncompliance around the 2008 municipal elections. We find that the vote share of candidates aligned with the President is lower in zip codes where more beneciaries received penalties shortly before (as opposed to shortly after) the elections. Second, we show that politicians strategically manipulate enforcement. Using a regression discontinuity design, we finnd weaker enforcement before elections in municipalities where mayors from the presidential coalition can run for reelection. Finally, we provide evidence that manipulation occurs through misreporting school attendance, particularly in municipalities with a higher fraction of students in schools with politically connected principals.

Published: Journal of the European Economic Association
DOI: https://doi.org/10.1093/jeea/jvz024
Research Theme: Political Economy
Affiliation: CAGE

315/2017 David Hugh-Jones and Carlo PerroniThe logic of costly punishment reversed: Expropriation of free-riders and outsiders

315/2017 David Hugh-Jones and Carlo Perroni

Current literature views the punishment of free-riders as an under-supplied public good, carried out by individuals at a cost to themselves. It need not be so: often, free-riders’ property can be forcibly appropriated by a coordinated group. This power makes punishment profitable, but it can also be abused. It is easier to contain abuses, and focus group punishment on free-riders, in societies where coordinated expropriation is harder. Our theory explains why public goods are undersupplied in heterogenous communities: because groups target minorities instead of free-riders. In our laboratory experiment, outcomes were more efficient when coordination was more difficult, while outgroup members were targeted more than ingroup members, and reacted differently to punishment.

Published: Journal of Economic Behavior & Organization
DOI: http://dx.doi.org/10.1016/j.jebo.2017.01.006
Research Theme: Culture and Development
Affiliation: CAGE

314/2017 Martin R. West, Ludger Woessmann, Philipp Lergetporer and Katharina WernerHow Information Affects Support for Education Spending: Evidence from Survey Experiments in Germany and the United States

314/2017 Martin R. West, Ludger Woessmann, Philipp Lergetporer and Katharina Werner

To study whether current spending levels and public knowledge of them contribute to transatlantic differences in policy preferences, we implement parallel survey experiments in Germany and the United States. In both countries, support for increased education spending and teacher salaries falls when respondents receive information about existing levels. Treatment effects vary by prior knowledge in a manner consistent with information effects rather than priming. Support for salary increases is inversely related to salary levels across American states, suggesting that salary differences could explain much of Germans’ lower support for increases. Information about the tradeoffs between specific spending categories shifts preferences from class-size reduction towards alternative purposes.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

313/2017 Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold and LudgerWoessmannCoping with Change: International Differences in the Returns to Skills

313/2017 Eric A. Hanushek, Guido Schwerdt, Simon Wiederhold and LudgerWoessmann

International data from the PIAAC survey allow estimation of comparable labor-market returns to skills for 32 countries. Returns to skills are larger in faster growing economies, consistent with the hypothesis that skills are particularly important for adaptation to economic change.

Published: Economics Letters
DOI: http://dx.doi.org/10.1016/j.econlet.2017.01.007
Research Theme: Economic History
Affiliation: External Research Associate

312/2017 Mark HarrisonSecrecy and State Capacity: A Look Behind the Iron Curtain

312/2017 Mark Harrison

This paper reviews two decades of research on the political economy of secrecy, based on the records of former Soviet state and party archives. Secrecy was an element of Soviet state capacity, particularly its capacity for decisiveness, free of the pressures and demands for accountability that might have arisen from a better informed citizenry. But secrecy was double-edged. Its uses also incurred substantial costs that weakened the capacity of the Soviet state to direct and decide. The paper details the costs of secrecy associated with “conspirative” government business processes, adverse selection of management personnel, everyday abuses of authority, and an uninformed leadership.

Published:
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Research Theme: Economic History
Affiliation: CAGE

311/2016 Farzana Afridi, Amrita Dhillon and Eilon SolanExposing corruption: Can electoral competition discipline politicians?

311/2016 Farzana Afridi, Amrita Dhillon and Eilon Solan

In developing countries with weak institutions, there is implicitly a large reliance on elections to instil norms of accountability and reduce corruption. In this paper we show that electoral discipline may be ineective in reducing corruption when political competition is too high or too low. We rst build a simple game theoretic model to capture the eect of electoral competition on corruption. We show that in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. We also predict that when there are dierent types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition. We test the model's predictions using data gathered on audit ndings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. Our results largely conrm the theoretical results that competition has a non-linear eect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, our results suggest that over-reliance on elections to discipline politicians is misplaced.

Published:
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Research Theme: Political Economy
Affiliation: External Research Associate

310/2016 Jane Humphries and Jacob WeisdorfUnreal Wages?

310/2016 Jane Humphries and Jacob Weisdorf

Existing measures of historical real wages suffer from the fundamental problem that workers’ annual incomes are estimated on the basis of day wages without knowing the length of the working year. We circumvent this problem by presenting a novel wage series of male workers employed on annual contracts. We use evidence of labour market arbitrage to argue that existing real wage estimates are badly off target, because they overestimate the medieval working year but underestimate the industrial one. Our data suggests that modern economic growth began two centuries earlier than hitherto thought and was driven by an ‘Industrious Revolution’.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/uez017
Research Theme: Economic History
Affiliation: External Research Associate

309/2016 Maria Teresa Sanchis LlopisDid electricity drive Spain’s “most progressive decade”?

309/2016 Maria Teresa Sanchis Llopis

Following the growth accounting approach introduced by Oliner & Sichel (2000, 2002) to evaluate the impact of information and communications technologies on the U.S. economy in the 1990s, this paper analyses the impact of electricity on Spanish economic growth in the period 1958-1970. Spain was a follower country that exhibited the benefits of electricity nearly half a century after it had its biggest impact in the U.S. The results confirm that electricity played a significant role in Spain via the three channels identified in the literature for quantifying the contribution of a general purpose technology (GPT): capital deepening, the total factor productivity effect and the spillover effect. The overall impact is greater than that estimated for other follower countries in the 1920s. The main boost to growth came from improvements in productivity in developments in electric plants electricity and the production of electrical capital goods, not from electricity use. We also find a weaker positive effect of spillovers in electricity-using industries. The laggard effect of electrification in Spain, in spite of its early start, confirms that a GPT needs time to establish new institutional arrangements and complementary investments in order to display positive linkages deriving from the new technology.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

308/2016 Amrita Dhillon, Andrew Pickering and Tomas SjöströmSovereign Debt: Election Concerns and the Democratic Disadvantage

308/2016 Amrita Dhillon, Andrew Pickering and Tomas Sjöström

We examine default decisions under different political systems. If democratically elected politicians are unable to make credible commitments to repay externally held debt, default rates are inefficiently high because politicians internalize voter utility loss from repayment. A politician who is motivated by election concerns is more likely to default in order to avoid voter utility losses, and, since lenders recognize this, interest rates and risk premia rise. Therefore, democracy potentially confers a credit market disadvantage. Institutions that are shielded from political competition, such as independent central banks, may ameliorate the disadvantage by adopting a more farsighted perspective, taking into account how interest rates respond to default risk. Using a numerical measure of institutional farsightedness obtained from the Government Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is indeed strongly conditional on farsightedness. With myopic institutions, democracy is estimated to cost on average about 2.5 investment grades. With farsighted institutions there is, if anything, a democratic advantage.

Published:
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Research Theme: Culture and Development
Affiliation: External Research Associate

307/2016 David S. Jacks and Dennis NovyMarket Potential and Global Growth over the Long Twentieth Century

307/2016 David S. Jacks and Dennis Novy

We examine the evolution of market potential over the long twentieth century from 1900 to 2010. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are, thus, able to express market potential as a function of directly observable and easily estimable variables. This allows us to consistently compare our measure of market potential both in the cross-section and over time. Empirically, we collect a large data set on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world, in particular after World War II. The rise in market potential is also associated with a significant share of global income growth over that period

Published: Journal of International Economics
DOI: https://doi.org/10.1016/j.jinteco.2018.07.003
Research Theme: Economic History
Affiliation: CAGE

306/2016 Sascha O. Becker and Thiemo FetzerDoes Migration Cause Extreme Voting?

306/2016 Sascha O. Becker and Thiemo Fetzer

The 2004 accession of 8 Eastern European countries (plus Cyprus and Malta) to the European Union (EU) was overshadowed by feared mass migration of workers from the East due to the EU’s rules on free mobility of labour. While many incumbent EU countries imposed temporary restrictions on labour mobility, the United Kingdom did not impose any such restrictions. We document that following accession at least 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. Places that received large numbers of migrants from Eastern Europe saw a significant increase in anti-European sentiment after 2004, measured by vote shares for the UK Independence Party (UKIP) in elections to the European Parliament. We show that the migration wave depressed wages at the lower end of the wage distribution and contributed to increased pressure on public services and housing.

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Research Theme: Culture and Development
Affiliation: CAGE

305/2016 Sascha O. Becker, Thiemo Fetzer and Dennis NovyWho Voted for Brexit? A Comprehensive District-Level Analysis

305/2016 Sascha O. Becker, Thiemo Fetzer and Dennis Novy

On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their age and education profiles as well as the historical importance of manufacturing employment, low income and high unemployment. Migration was relevant only from Eastern European countries, not from older EU states or non-EU countries. We also find an important role for fiscal cuts being associated with Vote Leave. Our results indicate that modest reductions in fiscal cuts could have swayed the referendum outcome. In contrast, even drastic changes in immigration patterns would probably not have made a difference. We confirm the above findings at the much finer level of wards within cities. Our results cast doubt on the notion that short-term campaigning events had a meaningful influence on the vote.

Published: Economic Policy
DOI: https://doi.org/10.1093/epolic/eix017
Research Theme: Political Economy
Affiliation: CAGE

304/2016 Michael Becher, Daniel Stegmueller and Konstantin KäppnerLocal Union Organization and Lawmaking in the U.S. Congress

304/2016 Michael Becher, Daniel Stegmueller and Konstantin Käppner

While the political power of labor unions is a contentious issue in the social sciences, it is often conceived mainly as a question of aggregate union membership. Going beyond the common focus on numerical strength, we argue that unions’ influence on national lawmaking has significant roots in their local organization. We delineate and test the hypothesis that the horizontal concentration of union members within electoral districts shapes legislators’ voting behavior. Drawing on extensive administrative records, we map the membership size and concentration of union locales to districts of the U.S. House of Representatives, 2003-2012. Our new data reveal that concentration clearly cuts across membership size. Consistent with theoretical expectations, both concentration and membership are robustly linked to legislators’ ideology and votes on key issues. Lower membership concentration means more legislative support of union positions. Altogether, we suggest a new perspective on the political power of unions in the twenty- first century.

Published: The Journal of Politics
DOI: https://doi.org/10.1086/694546
Research Theme: Political Economy
Affiliation: External Research Associate

303/2016 Julia Cagé and Lucie GadenneTax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006

303/2016 Julia Cagé and Lucie Gadenne

This paper documents the fiscal cost of trade liberalization: the extent to which countries are able to recover the trade tax revenues lost from liberalizing trade by increasing tax revenues from other sources. Using a novel dataset on government revenues over the period 1792-2006 we compare the fiscal impact of trade liberalization in developing countries and in today’s rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. Half the developing countries in our sample experience a fall in total tax revenues that lasts more than ten years after an episode. Results are similar when we consider government expenditures, suggesting decreases in trade tax revenues negatively affect governments’ capacity to provide public services in many developing countries.

Published: Explorations in Economic History
DOI: https://doi.org/10.1016/j.eeh.2018.07.004
Research Theme: Economic History
Affiliation: CAGE

302/2016 Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari RoySex workers, Stigma and Self-Image: Evidence from Kolkata Brothels

302/2016 Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari Roy

This paper studies the link between self-image and behavior among those who face stigma due to poverty and social exclusion. Using a randomized field experiment with sex workers in Kolkata(India), we examine whether a psychological intervention aimed at mitigating the adverse effects of stigma can induce behavior change. We find significant improvements in participants’ self-image, as well as their savings and preventive health choices. Additionally, changes in savings and health behaviour persist up to fifteen and 21 months later respectively. Our findings highlight the potential of purely psychological interventions to improve the life choices and outcomes of marginalized groups.

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DOI:
Research Theme: Culture and Development
Affiliation: CAGE

301/2016 Neel OceanThe Determinants Of Well-being Prioritisation Over The Life Cycle

301/2016 Neel Ocean

Recently, a novel attempt has been made to estimate priorities for the different aspects of subjective well-being, in order to understand where resources might best be allocated. However, the determinants of, and life cycle trends for prioritisation have yet to be studied. This paper - the first to study these issues - finds no consistent evidence of variation in priorities over the life cycle, unlike the ‘mid-life crisis’ observed for levels. Life satisfaction is the most valued aspect of well-being throughout life. However, people overestimate the value placed by others on happiness. Well-being priorities are strongly influenced by well-being levels, and individual fixed effects such as personality, health level, and smoking frequency. The separation of aspects into cognitive and affective factors may provide additional insight into how individuals generate priorities, and hence inform the optimal targeting of policy.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

300/2016 Ludger WoessmannThe Importance of School Systems: Evidence from International Differences in Student Achievement

300/2016 Ludger Woessmann

Students in some countries do far better on international achievement tests than students in other countries. Is this all due to differences in what students bring with them to school – socioeconomic background, cultural factors, and the like? Or do school systems make a difference? This essay argues that differences in features of countries’ school systems, and in particular their institutional structures, account for a substantial part of the cross-country variation in student achievement. It first documents the size and cross-test consistency of international differences in student achievement. Next, it uses the framework of an education production function to provide descriptive analysis of the extent to which different factors of the school system, as well as factors beyond the school system, account for cross-country achievement differences. Finally, it covers research that goes beyond descriptive associations by addressing leading concerns of bias in cross-country analysis. The available evidence suggests that differences in expenditures and class size play a limited role in explaining cross-country achievement differences, but that differences in teacher quality and instruction time do matter. This suggests that what matters is not so much the amount of inputs that school systems are endowed with, but rather how they use them. Correspondingly, international differences in institutional structures of school systems such as external exams, school autonomy, private competition, and tracking have been found to be important sources of international differences in student achievement.

Published: Journal Of Economic Perspectives
DOI: http://dx.doi.org/10.1257/jep.30.3.3
Research Theme: Economic History
Affiliation: External Research Associate

299/2016 Eric A. Hanushek, Jens Ruhose, and Ludger WoessmannKnowledge Capital and Aggregate Income Differences: Development Accounting for U.S. States

299/2016 Eric A. Hanushek, Jens Ruhose, and Ludger Woessmann

Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. We develop detailed measures of skills of workers in each state based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. These new measures of knowledge capital permit development accounting analyses calibrated with standard production parameters. We find that differences in knowledge capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses, emphasizing the importance of appropriately measuring worker skills. These estimates support emphasis on school improvement as a strategy for state economic development.

Published: American Economic Journal: Macroeconomics
DOI: http://dx.doi.org/10.1257/mac.20160255
Research Theme: Economic History
Affiliation: External Research Associate

298/2016 Guilherme Lichand and Anandi ManiCognitive Droughts

298/2016 Guilherme Lichand and Anandi Mani

This paper tests whether uncertainty about future rainfall affects farmers’ decision-making through cognitive load. Behavioral theories predict that rainfall risk could impose a psychological tax on farmers, leading to material consequences at all times and across all states of nature, even within decisions unrelated to consumption smoothing, and even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine survey experiments with recent rainfall shocks to test the effects of rainfall risk on farmers’ cognition, and find that it decreases farmers’ attention, memory and impulse control, and increases their susceptibility to a variety of behavioural biases. Effects are quantitatively important, equivalent to losing 25% of one’s harvest at the end of the rainy season. Evidence that farmer’s cognitive performance is relatively less impaired in tasks involving scarce resources suggests that the effects operate through the mental bandwidth mechanism.

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DOI:
Research Theme: Culture and Development
Affiliation: CAGE

297/2016 Nicholas Crafts and Terence C. MillsSix Centuries of British Economic Growth: a Time-Series Perspective

297/2016 Nicholas Crafts and Terence C. Mills

This paper provides a time-series analysis of recent annual estimates of real GDP and industrial output covering 1270 to 1913. We show that growth can be regarded as a segmented trend stationary process. On this basis, we find that trend growth of real GDP per person was zero prior to the 1660s but then experienced two significant accelerations, pre- and post-industrial revolution. We also find that the hallmark of the industrial revolution is a substantial increase in the trend rate of growth of industrial output rather than being an episode of difference stationary growth.

Published: European Review of Economic History
DOI: http://dx.doi.org/10.1093/ereh/hew020
Research Theme: Economic History
Affiliation: CAGE

296/2016 Marc Klemp and Jacob WeisdorfFecundity, Fertility and the Formation of Human Capital

296/2016 Marc Klemp and Jacob Weisdorf

This research explores a fundamental cause of variation in human capital formation across families in the pre-modern period, as well as the mitigating effects of family-level economic prosperity. Exploiting a vast genealogy of English individuals in the17th to the 19th centuries, the study proposes and tests the hypothesis that lower parental reproductive capacity positively affected the socioeconomic achievements of offspring. In particular, the research establishes an effect of reproductive capacity on offspring human capital in the pre-modern era. Using the time interval between the date of marriage and the first birth as a measure of reproductive capacity, the research establishes that children of parents with lower fecundity were more likely to become literate and employed in skilled and high-wealth professions. The analysis finds that parental fecundity significantly affected the number of siblings, indicating that a trade-o↵ between child quantity and quality was present in England during the industrial revolution and supporting leading theories of the origins of modern economic growth. Furthermore, it finds that the effect was weaker for the socioeconomic elite, who could offset the cost of additional children by raising total investment in offspring human capital.

Published: The Economic Journal
DOI: https://doi.org/10.1111/ecoj.12589
Research Theme: Economic History
Affiliation: External Research Associate

295/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo PerroniElectoral Accountability And The Natural Resource Curse: Theory And Evidence From India

295/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo Perroni

The literature on the effects of natural resource abundance on economic growth is converging to the view that institutions play a central role. In this paper, we exploit the break up of three of the biggest Indian states, comprising areas with some of the largest endowments of natural resources in the country, to explore how the link between electoral accountability and natural resource abundance can explain differences in outcomes. Our theoretical framework shows that while states inheriting a larger share of natural resources after break up are potentially richer, the spatial distribution of these natural resources within these state can worsen economic outcomes by lowering electoral accountability. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality at the sub-regional level, using data on satellite measurements of night-time lights. Consistent with our theoretical predictions, the economic effect of secession is generally favourable. However, states that inherit a large fraction of mineral rich constituencies experience worse outcomes. This may be accounted for by lower electoral accountability in those areas.

Published:
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Research Theme: Culture and Development
Affiliation: External Research Associate

294/2016 Alexandra M. de Pleijt, Alessandro Nuvolari and Jacob WeisdorfHuman Capital Formation during the First Industrial Revolution: Evidence from the Use of Steam Engines

294/2016 Alexandra M. de Pleijt, Alessandro Nuvolari and Jacob Weisdorf

This paper explores the effect of technological change on human capital formation during the early phases of England’s Industrial Revolution. Following the methodology used in Franck and Galor (2016), we consider the adoption of steam engines as an indicator of technical change, examining the correlation between industrialisation and human capital by performing cross-sectional regression analyses using county-level variation in the number of steam engines installed in England by 1800. Using exogenous variation in carboniferous rock strata as an instrument for the regional distribution of steam engines, we find that technological change as captured by steam technology significantly improved the average working skills of the labour force. In particular, places with more steam engines had lower shares of unskilled workers and higher shares of highly-skilled mechanical workmen deemed important by Mokyr (2005) in the Industrial Revolution. Technological change was, however, not conducive to elementary education. Literacy rates and school enrollment rates were not systematically different in places with more steam engines. This diverse response to new technology highlights the ambiguous effects of early industrialisation on the formation of human capital.

Published: Journal of European Economic Association
DOI: https://doi.org/10.1093/jeea/jvz006
Research Theme: Economic History
Affiliation: External Research Associate

293/2016 Guido Schwerdt and Ludger WoessmannThe Information Value of Central School Exams

293/2016 Guido Schwerdt and Ludger Woessmann

The central vs. local nature of high-school exit exam systems can have important repercussions on the labor market. By increasing the informational content of grades, central exams may improve the sorting of students by productivity. To test this, we exploit the unique German setting where students from states with and without central exams work on the same labor market. Our difference-in-difference model estimates whether the earnings difference between individuals with high and low grades differs between central and local exams. We find that the earnings premium for a one standard-deviation increase in high-school grades is indeed 6 percent when obtained on central exams but less than 2 percent when obtained on local exams. Choices of higher-education programs and of occupations do not appear major channels of this result.

Published: Economics of Education Review
DOI: http://dx.doi.org/10.1016/j.econedurev.2016.11.005
Research Theme: Economic History
Affiliation: External Research Associate

292/2016 Philipp Lergetporer, Guido Schwerdt, Katharina Werner, and Ludger WoessmannInformation and Preferences for Public Spending: Evidence from Representative Survey Experiments

292/2016 Philipp Lergetporer, Guido Schwerdt, Katharina Werner, and Ludger Woessmann

The electorates’ lack of information about the extent of public spending may cause misalignments between voters’ preferences and the size of government. We devise a series of representative survey experiments in Germany that randomly provide treatment groups with information on current spending levels. Results show that such information strongly reduces support for public spending in various domains from social security to defense. Data on prior information status on school spending and teacher salaries shows that treatment effects are strongest for those who initially underestimated spending levels, indicating genuine information effects rather than pure priming effects. Information on spending requirements also reduces support for specific education reforms. Preferences on spending across education levels are also malleable to information.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

291/2016 Xavier D’Haultfoeuille and Roland RathelotMeasuring Segregation on Small Units: A Partial Identification Analysis

291/2016 Xavier D’Haultfoeuille and Roland Rathelot

We consider the issue of measuring segregation in a population of small units, considering establishments in our application. Each establishment may have a different probability to hire an individual from the minority group. We define segregation indices as inequality indices on these unobserved, random probabilities. Because these probabilities are measured with error by proportions, standard estimators are inconsistent. We model this problem as a nonparametric binomial mixture. Under this testable assumption and conditions satisfied by standard segregation indices, such indices are partially identified and sharp bounds can be easily obtained by an optimization over a low dimensional space. We also develop bootstrap confidence intervals and a test of the binomial mixture model. Finally, we apply our method to measure the segregation of foreigners in small French firms.

Published: Quantitative Economics
DOI: http://dx.doi.org/10.3982/QE501
Research Theme: Culture and Development
Affiliation: CAGE

290/2016 Romain Aeberhard, Élise Coudin and Roland RathelotThe heterogeneity of ethnic employment gaps

290/2016 Romain Aeberhard, Élise Coudin and Roland Rathelot

This paper investigates the heterogeneity of ethnic employment gaps using a new single-index based approach. Instead of stratifying our sample by age or education, we study ethnic employment gaps along a continuous measure of employability, the employment probability minority workers would have if their characteristics were priced as in the majority group.We apply this method to French males, comparing those whose parents are North African immigrants and those with native parents. We nd that both the raw and the unexplained ethnic employment differentials are larger for low-employability workers than for high-employability ones. We show in a theoretical framework that this heterogeneity can be accounted for by homogeneous underlying mechanisms and is not evidence for, say, heterogeneous discrimination. Finally, we discuss our main empirical findings in the light of simple taste-based vs. statistical discrimination models.

Published: Journal of Population Economics
DOI: http://dx.doi.org/10.1007/s00148-016-0602-3
Research Theme: Culture and Development
Affiliation: CAGE

289/2016 Lucie GadenneTax Me, But Spend Wisely? Sources of Public Finance and Government Accountability

289/2016 Lucie Gadenne

Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries - but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast increases in grants over which municipalities have the same discretion as over taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more towards expenditures that benefit citizens than increases in grant revenues.

Published: American Economic Journal: Applied Economics
DOI: http://dx.doi.org/10.1257/app.20150509
Research Theme: Political Economy
Affiliation: CAGE

288/2016 Sascha O. Becker and Luigi PascaliReligion, Division of Labor and Conflict: Anti-Semitism in German Regions over 600 Years

288/2016 Sascha O. Becker and Luigi Pascali

Anti-Semitism continues to be a widespread societal problem rooted deeply in history. Using novel city-level data from Germany for more than 2,000 cities and county-level data, we study the role of economic incentives in shaping the co-existence of Jews, Catholics and Protestants. The Catholic ban on usury gave Jews living in Catholic regions a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost this advantage in regions that became Protestant but not in those regions that remained Catholic. We show that 1) the Protestant Reformation induced a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; 2) this change was more pronounced in cities where Jews had already established themselves as moneylenders; 3) the Reformation reduced the specialization of Jews in the financial sector in Protestant regions but not in Catholic regions. We interpret these findings as evidence that, following the Protestant Reformation, the Jews living in Protestant regions lost their comparative advantage in lending. This change exposed them to competition with the Christian majority leading, eventually, to an increase in anti-Semitism.

Published: American Economic Review
DOI: https://dx.doi.org/10.1257/aer.20170279
Research Theme: Economic History
Affiliation: CAGE

287/2016 Graciela Chichilnisky and Peter J. HammondThe Kyoto Protocol and Beyond: Pareto Improvements to Policies that Mitigate Climate Change

287/2016 Graciela Chichilnisky and Peter J. Hammond

Classical gains from trade results involve comparing a Pareto efficient allocation with a status quo that is typically inefficient. When there is a public good like mitigating climate change, such results apply only if that good happens to be supplied efficiently. Here, however, we consider emissions trade as envisaged in Article 17 of the Kyoto Protocol. Such trade could attain a constrained Pareto efficient allocation in which aggregate emissions are held fixed. Relative to any status quo, we show that with a suitable international distribution of permit rights, international emissions trade allows each nation more consumption while keeping aggregate emissions constant. The Clean Development Mechanism (CDM) envisaged in Article 12 allows additional gains, as do the provisions of the 2015 Paris Agreement that grant credit for carbon removals. Contrary to some claims, the Kyoto Protocol is not “defunct”; instead, retaining its key provisions of emissions trade and the CDM while including credit for carbon removals could make emissions reductions much more affordable.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

286/2016 Tobias Rommel and Stefanie WalterThe Electoral Consequences of Offshoring

286/2016 Tobias Rommel and Stefanie Walter

How does offshoring affect individual party preferences in multi-party systems? We argue that exposure to offshoring influences individual preferences for those political parties with clear policy positions on issues relevant for individuals with offshorable jobs (left, liberal and center-right parties), but does not affect voting decisions for parties concentrating on other issues (green parties or populist right parties). Examining individual-level data from five waves of the European Social Survey for 18 advanced democracies, we find that these effects vary by skill and exposure. Offshoring increases the preference for parties advocating economic openness among the highly skilled. In contrast, among the low-skilled, those exposed to offshoring are more likely to prefer leftist political parties that champion social protection and redistribution.

Published: Comparative Political Studies
DOI: https://doi.org/10.1177/0010414017710264
Research Theme: Political Economy
Affiliation: External Research Associate

285/2016 Thiemo Fetzer and Samuel MardenTake what you can: property rights, contestability and conflict

285/2016 Thiemo Fetzer and Samuel Marden

Weak property rights are strongly associated with underdevelopment, low state capacity and civil conflict. In economic models of conflict, outbreaks of violence require two things: the prize must be both valuable and contestable. This paper exploits spatial and temporal variation in contestability of land title to explore the relation between (in)secure property rights and conflict in the Brazilian Amazon. Our estimates suggest that, at the local level, assignment of secure property rights eliminates substantively all land related conflict, even without changes in enforcement. Changes in land use are also consistent with reductions in land related conflict.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12487
Research Theme: Culture and Development
Affiliation: CAGE

284/2016 Thiemo Fetzer, Oliver Pardo and Amar ShanghaviMore than an Urban Legend: The long-term socioeconomic effects of unplanned fertility shocks

284/2016 Thiemo Fetzer, Oliver Pardo and Amar Shanghavi

This paper exploits a nearly year-long period of power rationing that took place in Colombia in 1992, to shed light on three interrelated questions. First, we show that power shortages can lead to higher fertility, causing mini baby booms. Second, we show that the increase in fertility had not been offset by having fewer children over the following 12 years. Third, we show that the fertility shock caused mothers worse socioeconomic outcomes 12 years later. Taken together, the results suggest that there are significant indirect social costs to poor public infrastructure.

Published: Journal of Population Economics
DOI: https://doi.org/10.1007/s00148-017-0685-5
Research Theme: Economic History
Affiliation: CAGE

283/2016 Mark HarrisonFoundations of the Soviet Command Economy, 1917 to 1941

283/2016 Mark Harrison

In a command economy, centralized political priorities take precedence over market equilibrium, and government purchases cannot be refused. This chapter describes the antecedents, origins, evolution, and outcomes of the Soviet command economy from the Bolshevik Revolution to World War II. The Soviet command economy was built in two phases, 1917 to 1920, and 1928 onward, with a ‘breathing space’ between. The present account gives prominence to features of a command economy that, while missing from the first phase, were developed during the breathing space, and then helped to ensure the relative success of the second phase. These were features that assured secrecy, security, and the selection of economic officials for competence and party loyalty. Like any economy in the international system, the command economy had a comparative advantage: the production of economic and military power.

Published: The Cambridge History of Communism
DOI: http://dx.doi.org/10.1017/9781316137024.017
Research Theme: Economic History
Affiliation: CAGE

282/2016 Kenneth A. ShepsleThe Rules of the Game: What Rules? Which Game?

282/2016 Kenneth A. Shepsle

Douglass North is famous for, among other things, making institutions the centerpiece of studies of political economy. Institutions are, for him, the humanly constructed rules of the game, a game form in the language of game theory. An alternative conceptualization, associated with Schotter (1981) and Calvert (1995), and responsive to concerns articulated by Riker (1980), conceives of North’s game form as part of a more allencompassing equilibrium of rational human behavior. Whereas North takes the rules of the game as exogenous and seeks to identify the equilibria that arise when agents, abiding by the rules, bring particular preferences to a situation, what Shepsle (1979) called a structure-induced equilibrium, Schotter and Calvert allow for the possibility of noncompliance with extant rules and, indeed, for moves that alter the game form altogether. In the present paper, these two approaches are developed more fully. Examples drawn from the US Congress are used to exhibit the ways in which rules arise, change endogenously, and are sometimes even violated. Rational, self-governing agents are not, as in North’s formulation, absolutely bound by exogenous constraints, and are often able to reformulate the ways they do their business.

Published: Cambridge University Press
DOI: http://dx.doi.org/10.1017/CBO9781107300361.006
Research Theme: Political Economy
Affiliation: External Research Associate

281/2016 Jon X. Eguia and Kenneth A. ShepsleLegislative Bargaining with Endogenous Rules

281/2016 Jon X. Eguia and Kenneth A. Shepsle

We study repeated legislative bargaining in an assembly that chooses its bargaining rules endogenously and whose members face an election after each legislative term. An agenda protocol or bargaining rule assigns to each legislator a probability of being recognized to make a policy proposal in the assembly. We predict that the agenda protocol chosen in equilibrium disproportionately favors more senior legislators, granting them greater opportunities to make policy proposals, and it generates an incumbency advantage to all legislators.

Published: The Journal of Politics
DOI: http://dx.doi.org/10.1086/682389
Research Theme: Political Economy
Affiliation: External Research Associate

280/2016 Nicholas CraftsThe Growth Effects of EU Membership for the UK: a Review of the Evidence

280/2016 Nicholas Crafts

This paper reviews the literature on the implications of EU membership for the UK. It concludes that membership has raised UK income levels appreciably and by much more than 1970s’ proponents of EU entry predicted. These positive effects stem from the EU’s success in increasing trade and the impact of stronger competition on UK productivity. The economic benefits of EU membership for the UK have far exceeded the costs of budgetary transfers and regulation. Brexit is risky and its impact would depend heavily on the terms negotiated and the use made of the policy space that it freed up.

Published: The Political Quarterly
DOI: https://doi.org/10.1111/1467-923X.12261
Research Theme: Economic History
Affiliation: CAGE

279/2016 Michael Callen, Suresh de Mel, Craig McIntosh and Christopher WoodruffWhat Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka

279/2016 Michael Callen, Suresh de Mel, Craig McIntosh and Christopher Woodruff

When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labor effort in both selfemployment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labor allocation, and suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.

Published: The Review of Economic Studies
DOI: https://doi.org/10.1093/restud/rdz020
Research Theme: Culture and Development
Affiliation: CAGE

278/2016 Pablo Beramendi and Daniel StegmuellerThe Political Geography of the Eurocrisis

278/2016 Pablo Beramendi and Daniel Stegmueller

Contrary to the expectations from currency unions theory and historical precedent, the EURO area has failed to integrate fiscally in response to the crisis. At the same time, however, significant horizontal transfers towards financial stabilization have taken place. What explains this co-existence of persistent reluctance by domestic leaders in core EU countries to pursue fiscal integration and large scale financial transfers between nations within the union? We analyze responses to the crisis as a result of the geography of income and production. Heterogeneity of constituencies’ redistribution preferences associated with a diverse economic geography accounts for the political constraints on national governments keeping them from furthering fiscal integration. In turn, cross-unit externalities in the form of potential financial risks shift the preferences of citizens potentially exposed to negative side-effects and open up the possibility of efforts towards international insurance/redistribution. The paper presents first an analytical framework to study these two mechanisms. Subsequently, we perform empirical analyses of the determinants of preferences for social insurance/redistribution, fiscal integration, and international redistribution in the aftermath of the Eurocrisis.

Published:
DOI:
Research Theme: Political Economy
Affiliation: External Research Associate

277/2016 Francesc Amat and Pablo BeramendiEconomic and Political Inequality: The Role of Political Mobilization

277/2016 Francesc Amat and Pablo Beramendi

This paper analyzes the relationship between economic and political inequality. Beyond the view that inequality reduces turnout we document a non-linear relationship between them. To explain these patterns we argue that parties' strategies to target and mobilize low income voters reflect the level of economic inequality and development. Under high inequality and low development, clientelism becomes the dominant form of political competition and turnout inequality declines. As societies grow and inequality recedes, clientelism becomes suboptimal and arties turn to mobilize voters around programmatic oerings. As a result, turnout inequality increases. Empirically, we produce two analyses. First, we identify the relationship between political mobilization strategies, inequality and turnout by exploiting the randomized allocation of anti-fraud measures across Brazilian municipalities in the early 2000s. Second, we address the generalizability of our findings by carrying out a cross-national multilevel analysis of the elationship between inequality, strategies for political mobilization, and turnout inequality.

Published:
DOI:
Research Theme: Political Economy
Affiliation: External Research Associate

276/2016 Tamás Vonyó and Alexander KleinWhy Did Socialism Fail? The Role of Factor Inputs Reconsidered

276/2016 Tamás Vonyó and Alexander Klein

We present revised growth accounts for three socialist economies between 1950 and 1989. Government statistics reported distorted measures for both the rate and trajectory of productivity growth in Czechoslovakia, Hungary, and Poland. Researchers have benefited from revised output data, but continued to use official statistics on capital input, or estimated capital stock from official investment data. Investment levels and rates of capital accumulations were, in fact, much lower than officially claimed and over-reporting worsened over time. Sluggish factor accumulation, specifically declining equipment investment and labor input, contributed much more to the socialist growth failure of the 1980s than previously thought.

Published: The Economic History Review
DOI: https://doi.org/10.1111/ehr.12734
Research Theme: Economic History
Affiliation: External Research Associate

275/2016 Sebastian Fleitas, Price Fishback, and Kenneth SnowdenEconomic Crisis and the Demise of a Popular Contractual Form: Building and Loan Mortgage Contracts in the 1930s

275/2016 Sebastian Fleitas, Price Fishback, and Kenneth Snowden

During the housing crisis of the 1930s long delays in the resolution of severely distressed Building and Loan associations led to the rapid diminution of these previously successful and important home mortgage lenders. These delays were caused by a unique contractual structure that created incentives for borrowing members to prolong dissolution and granted them control, along with non-borrowers, over the timing of liquidation. Using a new dataset of New Jersey B&Ls we estimate a voting model of dissolution and find that the probability of B&L liquidation rose 37 percent when the share of non-borrowing members rose above the two-thirds threshold. An average one-year delay in liquidation resulted that imposed costs on non-borrowing members roughly three times the gains borrowing members realized by delaying dissolution. These delays and costs contributed to the quick demise of the B&L and the rapid ascendancy of the modern Savings & Loan industry.

Published: Journal of Financial Intermediation
DOI: https://doi.org/10.1016/j.jfi.2017.08.003
Research Theme: Economic History
Affiliation: External Research Associate

274/2016 Price FishbackHow Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s

274/2016 Price Fishback

The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact,although the banks were aided when the RFC took ownership stakes.

Published: Journal of Economic Literature
DOI: https://doi.org/10.1257/jel.20161054
Research Theme: Economic History
Affiliation: External Research Associate

273/2016 Eugenio Proto and Andrew J. OswaldNational Happiness and Genetic Distance: A Cautious Exploration

273/2016 Eugenio Proto and Andrew J. Oswald

This paper studies a famous unsolved puzzle in quantitative social science. Why do some nations report such high levels of mental well-being? Denmark, for instance, regularly tops the league table of rich countries’ happiness; Britain and the US enter further down; some nations do unexpectedly poorly. The explanation for the longobserved ranking - one that holds after adjustment for GDP and other socioeconomic variables - is currently unknown. Using data on 131 countries, the paper cautiously explores a new approach. It documents three forms of evidence consistent with the hypothesis that some nations may have a genetic advantage in well-being.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12383
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

272/2016 Jonathan de Quidt, Thiemo Fetzer and Maitreesh GhatakCommercialization and the Decline of Joint Liability Microcredit

272/2016 Jonathan de Quidt, Thiemo Fetzer and Maitreesh Ghatak

Numerous authors point to a decline in joint liability microcredit, rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization-an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.

Published: Journal of Development Economics
DOI: https://doi.org/10.1016/j.jdeveco.2018.05.010
Research Theme: Culture and Development
Affiliation: CAGE

271/2016 Sascha O. Becker, Peter H. Egger and Maximilian von EhrlichEffects of EU Regional Policy: 1989-2013

271/2016 Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich

We analyze EU Regional Policy during four programming periods: 1989-1993, 1994-1999, 2000-2006, 2007-2013. When looking at all periods, we focus on the growth, employment and investment effects of Objective 1 treatment status. For the two later periods, we additionally look at the effects of the volume of EU transfers, overall and in sub-categories, on various outcomes. We also analyze whether the concentration of payments across spending categories affects the effectiveness if EU transfers. Finally, we pay attention to the role of EU funding for UK regions given the current debate in the UK.

Published: Regional Science and Urban Economics
DOI: https://doi.org/10.1016/j.regsciurbeco.2017.12.001
Research Theme: Economic History
Affiliation: CAGE

270/2016 Carlos Álvarez-Nogal, Leandro Prados de la Escosura and Carlos Santiago-Caballero Spanish Agriculture in the Little Divergence

270/2016 Carlos Álvarez-Nogal, Leandro Prados de la Escosura and Carlos Santiago-Caballero

This paper explores the role of agriculture in Spain’s contribution to the little divergence in Europe. On the basis of tithes, long-run trends in agricultural output are drawn. After a long period of relative stability, output suffered a severe contraction during 1570-1620, followed by stagnation to 1650, and steady expansion thereafter. Output per head shifted from a relatively high to a low path that persisted until the nineteenth century. The decline in agricultural output per head and per worker from a relatively high level contributed to Spain falling behind and, hence, to the Little Divergence in Europe. Output per worker moved along labour force in agriculture over the long run, supporting the depiction of Spain as a frontier economy. Institutional factors, in a context of financial and monetary instability and war, along climatic anomalies, provide explanatory hypotheses that deserve further research.

Published: European Review of Economic History
DOI: https://doi.org/10.1093/ereh/hew011
Research Theme: Economic History
Affiliation: External Research Associate

269/2016 Wiji Arulampalam, Anjor Bhaskar and Nisha SrivastavaDoes greater autonomy among women provide the key to better child nutrition?

269/2016 Wiji Arulampalam, Anjor Bhaskar and Nisha Srivastava

We examine the link between a mother’s autonomy - the freedom and ability to think, express, act and make decisions independently - and the nutritional status of her children. We design a novel statistical framework that accounts for cultural and traditional environment, to create a measure of maternal autonomy, a concept that has rarely been examined previously as a factor in children’s nutritional outcomes. Using data from the Third Round of the National Family Health Survey for India, supplemented with our qualitative survey, and accounting for "son preference" by limiting analysis to first-born children under 18 months of age, we document that maternal autonomy has a positive impact on the long-term nutritional status of rural children. We find that one standard deviation increase in maternal autonomy score (i) is associated with a 10 percent reduction (representing 300,000 children) in the prevalence of stunting, and (ii) compensates for half of the estimated average decline in Height-for Age Z- scores Indian children experience in the second six months of life. The findings underscore the importance of women’s empowerment in improving children’s nutrition during the critical first two years of life, a recognized "window of opportunity" for lifelong health and economic benefits.

Published:
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Research Theme: Culture and Development
Affiliation: CAGE

268/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo PerroniThe Natural Resource Curse Revisited: Theory and Evidence from India

268/2016 Amrita Dhillon, Pramila Krishnan, Manasa Patnam and Carlo Perroni

In 2000, three of the largest Indian states, comprising areas with some of the largest endowments of natural resources in the country, were split to create three new states. We exploit the dramatic change that ensued, both in the distribution of resources and in the allocation of political power, to examine the interplay natural resources and politics. We construct a theoretical framework designed to account both direct and indirect effects of the change in natural resource concentration on economic outcomes – the direct effects arising from revenue generation, the indirect ones arising, through a political channel, from an exchange of votes for natural resource rents at the local level. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality outcomes at the sub-regional level. Consistently with our theoretical predictions, we find that, while the economic effect of secession is generally favourable, constituencies rich in resources see a relative worsening of outcomes in both economic activity and inequality.

Published:
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Research Theme: Culture and Development
Affiliation: CAGE

267/2016 James P. ChoyReligion and the Family: The Case of the Amish

267/2016 James P. Choy

I construct a model of religion as an institution that provides community enforcement of contracts within families. Family altruism implies that family members cannot commit to reporting broken contracts to the community, so the community must monitor contract performance as well as inicting punishment. The community has less information than family members, and so community monitoring is ine cient. I provide evidence from a study of Amish institutions, including qualitative evidence from sociological accounts and quantitative evidence from a novel dataset covering nearly the entire Amish population of Holmes county, Ohio. I nd that 1) Amish households are not unitary, 2) the Amish community helps to support families by in icting punishments on wayward family members, 3) without the community Amish people have di culty committing to punishing family members, and 4) Amish community membership strengthens family ties, while otherwise similar religious communities in which there is less need for exchange between family members have rules that weaken family ties. My model has implications for understanding selection into religious practice and the persistence of culture.

Published:
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Research Theme: Culture and Development
Affiliation: CAGE

266/2016 James P. ChoyConstructing Social Division to Support Cooperation

266/2016 James P. Choy

Many societies are divided into multiple smaller groups. Certain kinds of interaction are more likely to take place within a group than across groups. I model a reputation effect that enforces these divisions. Agents who interact with members of different groups can support lower levels of cooperation with members of their own groups. A hierarchical relationship between groups appears endogenously in equilibrium. Group divisions appear without any external cause, and improvements in formal contracting institutions may cause group divisions to disappear. Qualitative evidence from the anthropological literature is consistent with several predictions of the model.

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Research Theme: Culture and Development
Affiliation: CAGE

265/2016 David McKenzie and Christopher WoodruffBusiness Practices in Small Firms in Developing Countries

265/2016 David McKenzie and Christopher Woodruff

Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.

Published: Management Science
DOI: https://doi.org/10.1287/mnsc.2016.2492
Research Theme: Culture and Development
Affiliation: CAGE

264/2016 Christian Groth and Karl Gunnar PerssonGrowth or stagnation in pre-industrial Britain? A revealed income growth approach

264/2016 Christian Groth and Karl Gunnar Persson

The extent of growth in pre-industrial Europe in general and in Britain in particular has attracted intense scholarly focus. Growth or Malthusian stagnation? No consensus has evolved. Reconstructions of national income from 1300 and up to the Industrial Revolution come to opposing conclusions and so do econometric studies. Applying Engels’ law, we suggest a new approach in which income growth is revealed by changes in occupational structure. Data needed for this approach are less contested than the wage and output series used in the existing literature. We find that pre-industrial Britain exhibited secular rise in the standard of living.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

263/2016 Mark HarrisonFact and Fantasy in Soviet Records: The Documentation of Soviet Party and Secret Police Investigations as Historical Evidence

263/2016 Mark Harrison

When we use Soviet documentation of political and secret police investigations to write history, to what extent are we vulnerable to the biases and inventions of the investigators? The problem is framed as one of principal and agent. It is argued that Soviet principals allowed their agents scope to manipulate facts and bias interpretations, not freely, but within strict limits that were laid down from above and varied from time to time. These limits were set by the leader’s “revolutionary insight,” the communist equivalent of what passes in more open societies today as “truthiness.” An understanding of the Soviet truthiness of the particular time is the best guide we have to interpreting the documentary records of that time. Evaluating them in this light, we see that Soviet historical documents are little different from the records of any other time and place.

Published:
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Research Theme: Economic History
Affiliation: CAGE

262/2016 Yaguang Zhang, Guo Fan and John WhalleyEconomic Cycles in Ancient China

262/2016 Yaguang Zhang, Guo Fan and John Whalley

We discuss business cycles in ancient China. Data on Ancient China business cycles are sparse and incomplete and so our discussion is qualitative rather than quantitative. Essentially, ancient debates focused on two types of cycles: long run political or dynastic cycles of many decades, and short run nature induced cycles. Discussion of the latter show strong parallels to Jevons’ conception of sun spot cycles. The former has no clear contemporary analogue, were often deepin impact and of long duration. The discussion of both focused on agricultural economies. Ancient discussion on intervention focused on counter cyclical measures, including stockpiling, and predated Keynes and the discussion in the 1930s by centuries. Also, a strongly held belief emerged that cycles create their own cycles to follow, and that cycles are part of the inevitable economic order, a view consistent with Mitchell’s view of the business cycle in the 1940s. Current debates on how best to respond to the ongoing global financial crisis draw in part on historical precedents, but these are largely limited to the last 150 years for OECD countries and with major focus on the 1990’s. Here we also probe material on Ancient China to see what is relevant.

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Research Theme: Economic History
Affiliation: External Research Associate

261/2016 Keting Shen, Jing Wang and John WhalleyMeasuring Changes in the Bilateral Technology Gaps between China, India and the U.S. 1979 - 2008

261/2016 Keting Shen, Jing Wang and John Whalley

Popular literature suggests a rapid narrowing of the technology gap between China and the U.S. based on large percentage increases in Chinese patent applications, and equally large increases in college registrants and completed PhDs (especially in sciences) in China in recent years. Little literature attempts to measure the technology gap directly using estimates of country aggregate technologies. This gap is usually thought to be smaller than differences in GDP per capita since the later reflect both differing factor endowments and technology parameters. This paper assesses changes in China’s technology gaps both with the U.S. and India between 1979 and 2008, comparing the technology level of these economies using a CES production framework in which the technology gap is reflected in the change of technology parameters. Our measure is related to but differs from the Malmquist index. We determine the parameter values for country technology by using calibration procedures. Our calculations suggest that the technology gap between China and the U.S. is significantly larger than that between India and the U.S. for the period before 2008. The pairwise gaps between the U.S. and China, and the U.S. and India remain large while narrowing at a slower rate than GDP per worker. Although China has a higher growth rate of total factor productivity than India over the period, the bilateral technology gap between China and India is still in India’s favor. India had higher income per worker than China in the 1970’s, and China’s much more rapid physical and human capital accumulation has allowed China to move ahead, but a bilateral technology gap remains.

Published: The Economies of China and India
DOI: https://doi.org/10.1142/9789813220713_0014
Research Theme: Economic History
Affiliation: External Research Associate

260/2016 Sascha O. Becker, Steven Pfaff and Jared RubinCauses and Consequences of the Protestant Reformation

260/2016 Sascha O. Becker, Steven Pfaff and Jared Rubin

The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.

Published: Explorations in Economic History
DOI: http://dx.doi.org/10.1016/j.eeh.2016.07.007
Research Theme: Economic History
Affiliation: CAGE

259/2016 Rabah Arezki, Thiemo Fetzer and Frank PischOn the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution

259/2016 Rabah Arezki, Thiemo Fetzer and Frank Pisch

This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2017.03.002
Research Theme: Culture and Development
Affiliation: CAGE

258/2015 Stephen Hansen and Michael McMahonShocking language: Understanding the macroeconomic effects of central bank communication

258/2015 Stephen Hansen and Michael McMahon

We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2015.12.008
Research Theme: Culture and Development
Affiliation: CAGE

257/2015 Gerben Bakker, Nicholas Crafts and Pieter WoltjerA Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941.

257/2015 Gerben Bakker, Nicholas Crafts and Pieter Woltjer

We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better measured labor quality, and show TFP-growth was lower than previously thought, broadly based across sectors, strongly variant intertemporally, and consistent with many diverse sources of innovation. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four leading sectors. Third, TFP-growth was not caused by a ‘yeast process’ originating in a dominant technology such as electricity.

Published:
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Research Theme: Economic History
Affiliation: CAGE

256/2015 Rocco Macchiavello, Andreas Menzel, Atonu Rabbani and Christopher WoodruffChallenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector

256/2015 Rocco Macchiavello, Andreas Menzel, Atonu Rabbani and Christopher Woodruff

Large private firms are still relatively rare in low-income countries, and we know little about how entry-level managers in these firms are selected. We examine a context in which nearly 80 percent of production line workers are female, but 95 percent of supervisors are male. We evaluate the effectiveness of female supervisors by implementing a training program for selected production line workers. Prior to the training, we find that workers at all level of the factory believe males are more effective supervisors than females. Careful skills diagnostics indicate that those perceptions do not always match reality. When the trainees are deployed in supervisory roles, production line workers initially judge females to be significantly less effective, and there is some evidence that the lines on which they work underperform. But after around four months of exposure, both perceptions and performance of female supervisors catch up to those of males. We document evidence that the exposure to female supervisors changes the expectations of male production workers with regard to promotion and expected tenure in the factory.

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Research Theme: Culture and Development
Affiliation: CAGE

255/2015 Eugenio Proto, Aldo Rustichini and Andis SofianosHigher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma

255/2015 Eugenio Proto, Aldo Rustichini and Andis Sofianos

Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payo sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

254/2015 Victor Lavy and Edith SandOn The Origins of Gender Human Capital Gaps: Short and Long Term Consequences of Teachers Stereotypical Biases

254/2015 Victor Lavy and Edith Sand

In this paper, we estimate the effect of primary school teachers’ gender biases on boys’ and girls’ academic achievements during middle and high school and on the choice of advanced level courses in math and sciences during high school. For identification, we rely on the random assignments of teachers and students to classes in primary schools. Our results suggest that teachers’ biases favoring boys have an asymmetric effect by gender-positive effect on boys’ achievements and negative effect on girls’. Such gender biases also impact students’ enrollment in advanced level math courses in high school—boys positively and girls negatively. These results suggest that teachers’ biased behavior at early stage of schooling have long run implications for occupational choices and earnings at adulthood, because enrollment in advanced courses in math and science in high school is a prerequisite for post-secondary schooling in engineering, computer science and so on. This impact is heterogeneous, being larger for children from families where the father is more educated than the mother and larger on girls from low socioeconomic background.

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Research Theme: Economic History
Affiliation: CAGE

253/2015 Sebastian G. Kessing, Vilen Lipatov and J. Malte ZoubekOptimal Taxation under Regional Inequality

253/2015 Sebastian G. Kessing, Vilen Lipatov and J. Malte Zoubek

Combining an intensive labor supply margin with an extensive, productivity-enhancing migration margin, we determine how regional inequality and labor mobility shape optimal redistribution. We propose the use of delayed optimal-control techniques to obtain optimal tax formulae with location-dependent productivity and two-dimensional heterogeneity. Our baseline simulations using the productivity differences between large metropolitan and other regions in the US indicate that productivity-increasing internal migration can constitute a quantitatively important constraint on redis-tribution. Allowing for regionally differentiated taxation with location-dependent productivity, we find that marginal tax rates in high (low) productivity regions should be corrected downwards (upwards) relative to a no-migration benchmark.

Published: European Economic Review
DOI: https://doi.org/10.1016/j.euroecorev.2020.103439
Research Theme: Culture and Development
Affiliation: External Research Associate

252/2015 Gordon H. Hanson, Nelson Lind and Marc-Andreas MuendlerThe Dynamics of Comparative Advantage

252/2015 Gordon H. Hanson, Nelson Lind and Marc-Andreas Muendler

This paper characterizes the dynamic empirical properties of country export capabilities in order to inform modelling of the long-run behavior of comparative advantage. The starting point for our analysis is two strong empirical regularities in international trade that have previously been studied incompletely and in isolation to one another. The literature has noted a tendency for countries to concentrate exports in a few sectors. We show that this concentration arises from a heavy-tailed distribution of industry export capabilities that is approximately log normal and whose shape is stable across countries, sectors, and time. Likewise, previous research has detected a tendency for mean reversion in national industry productivities. We establish that mean reversion in export capability, rather than indicative of convergence in productivities or degeneracy in comparative advantage, is instead consistent with a well behaved stochastic growth process that delivers a stationary distribution of country export advantage. In literature on the growth of cities and firms, economists have used stochastic processes to study the determinants of the long-run size distributions. Our contribution is to develop an analogous empirical framework for identifying the parameters that govern the stationarydistribution of export capability. The main result of this analysis is that a generalized gamma distribution, which nests many commonly studied distributions, provides a tight fit of the data but log normality offers a reasonable approximation. Importantly, the stochastic process that generates log normality can be estimated in its discretized form by simple linear regression. Log linearity allows for an extension of our approach to multivariate diffusions, in which one can permit innovations to productivity to be transmitted intersectorally and internationally, as in recent models of trade and growth.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

251/2015 Mark HarrisonWorld War II: Won by American Planes and Ships, or by the Poor Bloody Russian Infantry?

251/2015 Mark Harrison

This short paper reviews a new book about World War II. In most such books, what is new is not usually important, and what is important is not new. This one is an exception. How the War Was Won: Air-Sea Power and Allied Victory in World War II, by Phillips Payson O'Brien, sets out a new perspective on the war. An established view is that World War II was decided on the Eastern front, where multi-million armies struggled for supremacy on land and millions died. According to O’Brien, this neglects the fact that the preponderance of the Allied productive effort was devoted to building ships and planes for an air-sea battle that was fought to a limited extent in the East and with much higher intensity across the Western and Pacific theatres. The Allies’ air-sea power framed the outcomes of the great land campaigns by preventing Germany and Japan from fully realizing their economic potentials for war. Finding much to be said for this reinterpretation, I reconsider the true significance of the Eastern front.

Published: Journal of Strategic Studies
DOI: http://dx.doi.org/10.1080/01402390.2016.1144460
Research Theme: Economic History
Affiliation: CAGE

250/2015 Cormac O GradaOn plague in a time of Ebola

250/2015 Cormac O Grada

Ebola and plague share several characteristics, even though the second and third plague epidemics dwarfed the 2014-15 Ebola outbreak in terms of mortality. This essay reviews the mortality due to the two diseases and their lethality; the spatial and socioeconomic dimensions of plague mortality; the role of public action in containing the two diseases; and their economic impact.

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Research Theme: Economic History
Affiliation: External Research Associate

249/2015 Natalie Chen and Luciana JuvenalQuality and the Great Trade Collapse

249/2015 Natalie Chen and Luciana Juvenal

We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms’ exports.

Published: Journal of Development Economics
DOI: https://doi.org/10.1016/j.jdeveco.2018.06.012
Research Theme: Culture and Development
Affiliation: CAGE

248/2015 Morgan Kelly, Joel Mokyr, and Cormac Ó GrádaRoots of the Industrial Revolution

248/2015 Morgan Kelly, Joel Mokyr, and Cormac Ó Gráda

We analyze factors explaining the very di.erent patterns of industrialization across the 42 counties of England between 1760 and 1830. Against the widespread view that high wages and cheap coal drove industrialization, we find that industrialization was restricted to low wage areas, while energy availability (coal or water) had little impact. Instead we find that industrialization can largely be explained by two related factors related to the human capability of the labour force. Instead of being composed of landless labourers, successful industrializers had large numbers of small farms, which are associated with better nutrition and height. Secondly, industrializing counties had a high density of population relative to agricultural land, indicating extensive rural industrial activity: counties that were already reliant on small scale industry, with the technical and entrepreneurial skills this generated, experienced the strongest industrial growth. Looking at 1830s France we find that the strongest predictor of industrialization again is quality of workers shown by height of the population, although market access and availability of water power were also important there.

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Research Theme: Economic History
Affiliation: External Research Associate

247/2015 Mark HarrisonIf You Do Not Change Your Behaviour : Managing Threats to State Security in Lithuania under Soviet Rule

247/2015 Mark Harrison

In Soviet Lithuania (and elsewhere) from the 1950s to the 1980s, the KGB applied a form of "zero-tolerance" policing, or profilaktika, to incipient threats to state security. Petty deviation from socio-political norms was regarded as a person's first step towards more serious state crimes, and as a bad example for others. As long as petty violators could be classed as confused or misled rather than motivated by anti-Soviet conviction, their mistakes would be corrected by a KGB warning or "preventive discussion." Successful prevention avoided the costly removal of the subject from society. This represented a complete contrast to the Stalin years, when prevention relied largely on eliminating the subject from society. Preventive discussions were widely practised in many different circumstances. KGB internal evaluations concluded that these discussions were extremely effective in preventing further violations. This was the front line of the Soviet police state; it was perhaps the largest programme for personally targeted behaviour modification anywhere in the world at that time outside the education sector. It was also a front line of the Cold War because the foreign adversary was seen as the most important source of misleading or confusing influence. My work in progress aims to understand the origins and operation of profilaktika, including how and to whom it was applied, how it worked on the individual subject, and its wider influence on the Soviet Union’s social and political order.

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Research Theme: Economic History
Affiliation: CAGE

246/2015 Chunding Li, Jing Wang, and John WhalleyThe Armington Assumption and the Size of Optimal Tariffs

246/2015 Chunding Li, Jing Wang, and John Whalley

There has been commentary on the seeming success of the world trading system responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling which project post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling it is common to use the Armington assumption of product heterogeneity by country. Here we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory.

Published: Economic Modelling
DOI: http://doi.org/10.1016/j.econmod.2017.07.003
Research Theme: Culture and Development
Affiliation: External Research Associate

245/2015 Miguel Almunia and David Lopez-RodriguezUnder the Radar: The Effects of Monitoring Firms on Tax Compliance

245/2015 Miguel Almunia and David Lopez-Rodriguez

This paper analyzes the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.

Published: American Economic Journal
DOI: https://www.aeaweb.org/articles?id=10.1257/pol.20160229
Research Theme: Culture and Development
Affiliation: CAGE

244/2015 Nick Butt, Rohan Churm, Michael McMahon, Arpad Morotz and Jochen SchanzQE and the Bank Lending Channel

244/2015 Nick Butt, Rohan Churm, Michael McMahon, Arpad Morotz and Jochen Schanz

We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives ` flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.

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Research Theme: Culture and Development
Affiliation: CAGE

243/2015 Farzana Afridi, Amrita Dhillon and Swati SharmaSocial Networks and Labour productivity: A survey of recent theory and evidence

243/2015 Farzana Afridi, Amrita Dhillon and Swati Sharma

In this paper we survey some of the more recent theoretical and empirical literature on social networks and labour productivity. We discuss the use of referrals in recruitment of workers and the possible mechanisms underlying their use as well as ex-post e.ects on productivity from having connected workers in the firm and the channels for these e.ects. We also suggest some open questions for further research.

Published: Indian Economic Review
DOI: http://www.jstor.org/stable/43917204
Research Theme: Culture and Development
Affiliation: External Research Associate

242/2015 Romola J. DavenportThe first stages of the mortality transition in England: a perspective from evolutionary biology

242/2015 Romola J. Davenport

This paper examines the origins of the Mortality Revolution from an evolutionary point of view, in terms of the trade-offs between virulence and disease transmission. For diseases that are transmitted person-to-person and cannot persist outside a host then there is evidence of strong selective pressure against high host lethality. However for pathogens which don’t depend on their human host for transmission or can persist outside a human host (including plague, typhus, smallpox and malaria) then the conflict between virulence and dispersal is reduced. Importantly, the properties that permitted these diseases to be so lethal also made it easier for relatively weak interventions to break the chain of disease transmission. The early control of these major diseases was associated with large reductions in mortality, but also shifted the distribution of causes of death towards the less virulent diseases of the extremes of age and of poverty.

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Research Theme: Economic History
Affiliation: External Research Associate

241/2015 Kerry HicksonThe Welfare Cost Of Antimicrobial Resistance - Tuberculosis As An Illustrative Example

241/2015 Kerry Hickson

The recent increase in antimicrobial resistance has received concern from the government and media. The twentieth century history of tuberculosis in England and Wales presented here shows that some of the more extreme apocalyptic scenarios are unlikely. The paper shows that preventive medicine can play a major role; that the threat should reduce the use of antimicrobials; and the scope for government to intervene with sound public health policies. The paper also estimates the value of twentieth century health gains associated with eliminating tuberculosis in England and Wales to be worth at least $127 billion, which provides a warning about the potential gains that could be lost without initiatives to prevent antimicrobial resistance.

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Research Theme: Economic History
Affiliation: External Research Associate

240/2015 Sharun Mukand and Dani RodrikThe political economy of liberal democracy

240/2015 Sharun Mukand and Dani Rodrik

We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/ueaa004
Research Theme: Culture and Development
Affiliation: CAGE

239/15 Felix P. Meier zu Selhausen; Marco H.D. van Leeuwen and Jacob L. WeisdorfSocial Mobility among Christian Africans: Evidence from Ugandan Marriage Registers, 1895-2011

239/15 Felix P. Meier zu Selhausen; Marco H.D. van Leeuwen and Jacob L. Weisdorf

We use marriage registers from colonial and post-colonial Uganda to investigate long-term trends in social mobility among Christian Africans, finding a stark contrast to the pessimistic view that colonialism retarded Africa. Colonial influences in Uganda brought much greater and more equal opportunities for social advancement than in pre-colonial times. The colonial labour market was the main ladder for upward mobility, and the mission society helped provide the education and social reference needed to climb it. We find no "bufferzone" preventing sons of blue-collar descent from entering into white-collar work. The patterns continued throughout the post-colonial era despite political turmoil.

Published: The Economic History Review
DOI: https://doi.org/10.1111/ehr.12616
Research Theme: Economic History
Affiliation: External Research Associate

238/2015 Joram Mayshary, Omer Moav, Zvika Neeman & Luigi PascaliCereals, Appropriability and Hierarchy

238/2015 Joram Mayshary, Omer Moav, Zvika Neeman & Luigi Pascali

We propose that the development of social hierarchy following the Neolithic Revolution was an outcome of the ability of the emergent elite to appropriate cereal crops from farmers and not a result of land productivity, as argued by conventional theory. We argue that cereals are easier to appropriate than roots and tubers, and that regional differences in the suitability of land for different crops explain therefore differences in the formation of hierarchy and states. A simple model illustrates our main theoretical argument. Our empirical investigation shows that land suitability for cereals relative to suitability for tubers explains the formation of hierarchical institutions and states, whereas land productivity does not.

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Research Theme: Economic History
Affiliation: CAGE

237/2015 Matthew Dimick and Daniel StegmuellerThe Political Economy of Risk and Ideology

237/2015 Matthew Dimick and Daniel Stegmueller

This paper argues for the central role of risk aversion in shaping political ideology.We develop a political economy model to establish this link and provide empirical evidence in support of our argument. Our model distinguishes the effects of risk aversion from unemployment risk and our evidence sheds light on debates over explanations for the welfare state. We show that risk aversion is an important determinant of political-economic attitudes and is at least as important as, if not more so, an individual’s position in the income distribution.

Published:
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Research Theme: Political Economy
Affiliation: External Research Associate

236/2015 Thomas Hills, Eugenio Proto, Daniel Sgroi and Chanuki Illushka SeresinheHistorical Analysis of National Subjective Wellbeing using Millions of Digitized Books

236/2015 Thomas Hills, Eugenio Proto, Daniel Sgroi and Chanuki Illushka Seresinhe

In addition to improving quality of life, higher subjective wellbeing leads to fewer health problems, higher productivity, and better incomes. For these reasons subjective wellbeing has become a key focal issue among scientific researchers and governments. Yet no scientific investigator knows how happy humans were in previous centuries. Here we show that a new method based on quantitative analysis of digitized text from millions of books published over the past 200 years captures reliable trends in historical subjective wellbeing across four nations. This method uses psychological valence norms for thousands of words to compute the relative proportion of positive and negative language, indicating relative happiness during national and international wars, financial crises, and in comparison to historical trends in longevity and GDP. We validate our method using Eurobarometer survey data from the 1970s onwards and in comparison with economic, medical, and political events since 1820 and also use a set of words with stable historical meanings to support our findings. Finally we show that our results are robust to the use of diverse corpora (including text derived from newspapers) and different word norms.

Published: Nature Human Behaviour
DOI: https://doi.org/10.1038/s41562-019-0750-z
Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

235/2015 Alexander Klein & Nicholas CraftsAgglomeration Externalities and Productivity Growth: U.S. Cities in the Railroad Era, 1880-1930

235/2015 Alexander Klein & Nicholas Crafts

We investigate the role of industrial structure in labor productivity growth in U.S. cities between 1880 and 1930 using a new dataset constructed from the Census of Manufactures. We find that increases in specialization were associated with faster productivity growth but that diversity only had positive effects on productivity performance in large cities. We interpret our results as providing strong support for the importance of Marshallian externalities. Industrial specialization increased considerably in U.S. cities in the early 20th century, probably as a result of improved transportation, and we estimate that this resulted in significant gains in labor productivity.

Published: The Economic History Review
DOI: https://doi.org/10.1111/ehr.12786
Research Theme: Economic History
Affiliation: CAGE

234/2015 Enrico Spolaore & Romain WacziargAncestry, Language and Culture

234/2015 Enrico Spolaore & Romain Wacziarg

We explore the interrelationships between various measures of cultural distance. We first discuss measures of genetic distance, used in the recent economics literature to capture the degree of relatedness between countries. We next describe several classes of measures of linguistic, religious, and cultural distances. We introduce new measures of cultural distance based on differences in average answers to questions from the World Values Survey. Using a simple theoretical model we hypothesize that ancestral distance, measured by genetic distance, is positively correlated with linguistic, religious, and cultural distance. An empirical exploration of these correlations shows this to be the case. This empirical evidence is consistent with the view that genetic distance is a summary statistic for a wide array of cultural traits transmitted intergenerationally.

Published: The Palgrave Handbook of Economics and Language
DOI: http://dx.doi.org/10.1007/978-1-137-32505-1_7
Research Theme: Culture and Development
Affiliation: External Research Associate

233/2015 Cormac Ó Gráda'Cast back into the dark ages of medicine'? The challenge of antimicrobial resistance

233/2015 Cormac Ó Gráda

Antimicrobial resistance (AMR) is currently the focus of much media attention and policy discussion. A historical perspective on AMR suggests that although the challenge of AMR is real, the doomsday tone of most commentary is unwarranted. That is partly because most of the gains in life expectancy now deemed under threat preceded the antibiotics revolution. A combination of public health measures, rising living standards, and new medical knowledge all played their part in this. Even if AMR increases, the continuing effect of these factors and of new public health measures can limit the negative consequences. Moreover, recent developments suggest that the supply pipeline of new drugs is not quite as dry as usually claimed. The problem for now is not so much MRSA or malaria but carbapenem‐resistant gram‐negative bacteria, which pose an urgent threat and on which public funding for research on effective new therapies should concentrate.

Published: Addleton Academic Publishers
DOI: https://www.addletonacademicpublishers.com/search-in-ajmr/2764-cast-back-into-the-dark-ages-of-medicine-what-the-past-can-tell-us-about-the-challenge-of-antimicrobial-resistance
Research Theme: Economic History
Affiliation: External Research Associate

232/2015 Stephen Broadberry & Leigh GardnerEconomic Development In Africa And Europe : Reciprocal Comparisons

232/2015 Stephen Broadberry & Leigh Gardner

Recent advances in historical national accounting have allowed for global comparisons of GDP per capita across space and time. Critics have argued that GDP per capita fails to capture adequately the effects of new technology on living standards, and have developed alternative measures such as the human development index (HDI). Whilst recognising that this provides an appropriate measure for assessing levels of welfare, we argue that GDP per capita remains a more appropriate measure for assessing development potential, encompassing production as well as consumption. Twentieth-century Africa and pre-industrial Europe are used to show how such data can guide reciprocal comparisons to provide insights into the process of development on both continents.

Published: Revista de Historia Económica
DOI: http://dx.doi.org/10.1017/S0212610915000348
Research Theme: Economic History
Affiliation: CAGE

231/2015 Stephen Broadberry, Kyoji Fukao & Nick ZammitHow Did Japan Catch-up on The West? A Sectoral Analysis Of Anglo-Japanese Productivity Differences, 1885-2000

231/2015 Stephen Broadberry, Kyoji Fukao & Nick Zammit

Although Japanese economic growth after the Meiji Restoration is often characterised as a gradual process of trend acceleration, comparison with the United States suggests that catching-up only really started after 1950, due to the unusually dynamic performance of the US economy before 1950. A comparison with the United Kingdom, still the world productivity leader in 1868, reveals an earlier period of Japanese catching up between the 1890s and the 1920s, with a pause between the 1920s and the 1940s. Furthermore, this earlier process of catching up was driven by the dynamic productivity performance of Japanese manufacturing, which is also obscured by a comparison with the United States. Japan overtook the UK as a major exporter of manufactured goods not simply by catching-up in labour productivity terms, but by holding the growth of real wages below the growth of labour productivity so as to enjoy a unit labour cost advantage. Accounting for levels differences in labour productivity between Japan and the United Kingdom reveals an important role for capital in the catching-up process, casting doubt on the characterisation of Japan as following a distinctive Asian path of labour intensive industrialisation.

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Research Theme: Economic History
Affiliation: CAGE

230/2015 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta & Masanori TakashimaJapan and the Great Divergence, 725-1874

230/2015 Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta & Masanori Takashima

Japanese GDP per capita grew at an annual rate of 0.04 per cent between 725 and 1874, but the growth was episodic, with the increase in per capita income concentrated in three periods, 1150-1280, 1450-1600 and after 1730, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.

Published: Explorations in Economic History
DOI: https://doi.org/10.1016/j.eeh.2018.11.005
Research Theme: Economic History
Affiliation: CAGE

229/2015 Alexandra M. de PleijtHuman capital and long run economic growth: Evidence from the stock of human capital in England, 1300-1900

229/2015 Alexandra M. de Pleijt

Did human capital contribute to economic growth in England? In this paper the stock of total years of schooling present in the population between 1300 and 1900 is quantified. The stock incorporates extensive source material on literacy rates, the number of primary and secondary schools and enrolment figures. The trends in the data suggest that, whilst human capital facilitated pre-industrial economic development, it had no role to play during the Industrial Revolution itself: there was a strong decline in educational attainment between ca. 1750 and 1830. A time series analysis has been carried out that confirms this conclusion.

Published: Cliometrica
DOI: https://doi.org/10.1007/s11698-016-0156-3
Research Theme: Economic History
Affiliation: External Research Associate

228/2015 Lucy Barnes & Timothy HicksRisk, Recession, and Declining Popular Demand for the Welfare State

228/2015 Lucy Barnes & Timothy Hicks

How do individual preferences over welfare spending respond to economic hard times? In this paper we reconcile two prominent, opposing expectations : that recessions lead to a `hunkering down' such that individuals become less favorable to taxation and expenditure; and that downturns, being associated with increases in risk, should lead to increased demand for government expenditure. We present a simple formal model rooted in the risk/insurance literature, to demonstrate that these two intuitions both capture important effects. While the labor market risk literature correctly predicts that individual-level insecurity increases support for welfare expenditure, our model shows that it also predicts that poor macroeconomic performance has the opposite e ect. The government budget constraint links the two levels, and we demonstrate that concern about budget balance is the mechanism driving declines in support for tax-and-spend. We test our argument using British individual-level panel data from before and during the Great Recession, and use Eurobarometer data from 32 countries to probe our de cit-based mechanism. The evidence is supportive of our claims on both counts.

Published:
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Research Theme: Political Economy
Affiliation: External Research Associate

227/2015 Gregory S.Crawford, Nicola Pavanini & Fabiano SchivardiAsymmetric Information and Imperfect Competition in Lending Markets

227/2015 Gregory S.Crawford, Nicola Pavanini & Fabiano Schivardi

We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks’ optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition.

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Research Theme: Culture and Development
Affiliation: CAGE

226/2015 Simon Lapointe, Carlo Perroni, Kimberley Scharf and Janne TukiainenDoes Market Size Matter for Charities?

226/2015 Simon Lapointe, Carlo Perroni, Kimberley Scharf and Janne Tukiainen

We analyze implications of market size on market structure in the not-forprofit sector. We show that, while a standard model of oligopolistic competition between for-profits predicts a positive relationship between market size and firm size, an analogous model of not-for-profit competition predicts no such correlation. We then interrogate these predictions empirically by focusing on five charitable markets for local public goods. These findings both reject the applicability of the classic theories of oligopolistic competition between for-profit firms to the not-for-profit case and fail to reject the simple model proposed here.

Published: Journal of Public Economics
DOI: https://doi.org/10.1016/j.jpubeco.2018.10.003
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

225/2015 Nicholas CraftsIs Secular Stagnation the Future for Europe?

225/2015 Nicholas Crafts

There are at least two distinct (but related) concepts of ‘secular stagnation’. One concerns a possible long-run term trend growth failure and the other a permanent liquidity trap. In the context of poor productivity performance, both are legitimate fears for European economies although technological pessimism is misguided and scope for catch-up is still considerable. In each respect, however, policy responses that have worked in the past are available to address the problem. If European economies were to submit to either type of secular stagnation, it would be a result of policy failure rather than because it is inevitable.

Published: Oxford Scholarship Online
DOI: http://dx.doi.org/10.1093/acprof:oso/9780198786160.003.0003
Research Theme: Economic History
Affiliation: CAGE

224/2015 David Hugh-Jones and Carlo PerroniWhy are heterogenous communities inefficient? Theory, history and an experiment

224/2015 David Hugh-Jones and Carlo Perroni

We examine why heterogenous communities may fail to provide public goods. Current work characterizes sanctioning free-riders as an under-supplied public good. We argue that often free-riders can be punished by the coordinated action of a group. This punishment can be profitable, and need not be undersupplied. But the power to expropriate defectors can also be used to expropriate outgroups. Heterogenous societies may be inefficient because minorities, rather than free-riders, are expropriated. Even if this is not so, groups’ different beliefs about the reasons for expropriation may make the threat of punishment less effective at preventing free-riding. We illustrate our theory with evidence from California mining camps, contemporary India, and US schools. In a public goods experiment using minimal groups and a profitable punishment institution, outgroups were more likely to be punished, and reacted differently to punishment than ingroup members.

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Research Theme: Culture and Development
Affiliation: CAGE

223/2015 Oliver Falck, Constantin Mang, and Ludger WoessmannVirtually No Effect? Different Uses of Classroom Computers and their Effect on Student Achievement

223/2015 Oliver Falck, Constantin Mang, and Ludger Woessmann

Most studies find little to no effect of classroom computers on student achievement. We suggest that this null effect may combine positive effects of computer uses without equivalently effective alternative traditional teaching practices and negative effects of uses that substitute more effective teaching practices. Our correlated random effects models exploit within-student between-subject variation in different computer uses in the international TIMSS test. We find positive effects of using computers to look up information and negative effects of using computers to practice skills, resulting in overall null effects. Effects are larger for high-SES students and mostly confined to developed countries.

Published: Oxford Bulletin of Economics and Statistics
DOI: http://dx.doi.org/10.1111/obes.12192
Research Theme: Economic History
Affiliation: External Research Associate

222/2015 Alexandra M. de Pleijt and Jacob L. WeisdorfHuman Capital Formation from Occupations: The Deskilling Hypothesis Revisited

222/2015 Alexandra M. de Pleijt and Jacob L. Weisdorf

We use HISCLASS to code the occupational titles of over 30,000 English male workers according to the skill-content of their work. We then track the evolution of the sampled working skills across three centuries of English history, from 1550 to 1850. We observe a modest rise in the share of ‘high-quality workmen’ deemed necessary by Mokyr and others to facilitate the Industrial Revolution, including machine erectors and operators. But we also find remarkable growth in the share of unskilled workers, rising from 20% in the late sixteenth century to nearly 40% in the early nineteenth century, caused mainly by falling shares of semi-skilled, blue-collar workers. Close inspection of the occupational structures within the main sectors of production suggest that deskilling occurred in agriculture and industry alike, prompted by land concentration in agriculture and workshop-to-factory changes in industry.

Published: Cliometrica
DOI: http://dx.doi.org/10.1007/s11698-016-0140-y
Research Theme: Economic History
Affiliation: External Research Associate

221/2015 Enrico SpolaoreThe Political Economy of European Integration

221/2015 Enrico Spolaore

This paper discusses the process of European institutional integration from a political economy perspective, linking the long-standing political debate on the nature of the European project to the recent economic literature on political integration and disintegration. First, we introduce the fundamental trade-off between economies of scale associated with larger political unions and the costs from sharing public goods and policies among more heterogeneous populations, and examine the implications of the trade-off for European integration. Second, we describe the two main political theories of European integration - intergovernmentalism and functionalism - and argue that both theories capture important aspects of European integration, but that neither view provides a complete and realistic interpretation of the process. Finally, we critically discuss the successes and limitations of the actual process of European institutional integration, from its beginnings after World War II to the current crisis.

Published:
DOI:
Research Theme: Political Economy
Affiliation: External Research Associate

220/2015 Morgan Kelly and Cormac Ó GrádaAdam Smith, Watch Prices, and the Industrial Revolution

220/2015 Morgan Kelly and Cormac Ó Gráda

Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from records of criminal trials in the Old Bailey court in London from 1685 to 1810. Before allowing for quality improvements we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, a rate considerably above the growth rate of average labour productivity in British industry in the early nineteenth century.

Published: The Quarterly Journal of Economics
DOI: https://doi.org/10.1093/qje/qjw026
Research Theme: Economic History
Affiliation: External Research Associate

219/2015 Nicholas CraftsWest European Economic Integration since 1950: Implications for Trade and Income

219/2015 Nicholas Crafts

This paper provides a survey of the implications of post-war European economic integration for trade and income. A particular focus is the impact on the United Kingdom. The literature clearly points to large effects of the EU on trade but is more ambivalent about EFTA. Conventional econometric models suggest that this extra trade meant that the level of income in 2000 in EU countries was about 9 per cent larger. Comparisons of the ex-post income gains of EU membership for the United Kingdom with ex-ante predictions show that the outcome was far better than optimists expected in the 1970s.

Published: Routledge Handbook of the Economics of European Integration
DOI: https://www.taylorfrancis.com/books/e/9781315796918/chapters/10.4324/9781315796918-10
Research Theme: Economic History
Affiliation: CAGE

218/2015 Marcus Miller and Jennifer C. SmithIn the shadow of the Gulag: worker discipline under Stalin

218/2015 Marcus Miller and Jennifer C. Smith

Forthcoming in Journal of Comparative Economics, available at: //authors.elsevier.com/sd/article/S0147596715000207An ‘efficiency wage’ model developed for Western economies is reinterpreted in the context of Stalin’s Russia, with imprisonment – not unemployment – acting as a ‘worker discipline device’. The threat of imprisonment allows the state to pay a lower wage outside the Gulag than otherwise, thereby raising the “surplus” left over for investment: this externality provides a reason for coercion over and above the direct productivity of those in custody.Just how credible the threat of imprisonment was under Stalin is documented using archival data now available; but the enormous scale of random imprisonment involved is, we argue, attributable not to economic factors but to Stalin’s insecurity in the absence of a legitimate process for succession.We develop a model of demand and supply for industrial labour in such a command economy. To get more resources for investment or war, the state depresses the level of real wages; to avoid incentive problems in the wider economy, the harshness of prison conditions can be intensified. This is the logic of coercion we analyse.

Published: Journal of Comparative Economics
DOI: http://dx.doi.org/10.1016/j.jce.2015.01.005
Research Theme: Economic History
Affiliation: External Research Associate

217/2015 Sofia Teives Henriques and Paul SharpThe Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources

217/2015 Sofia Teives Henriques and Paul Sharp

We examine the case of Denmark - a country which historically had next to no domestic energy resources - for which we present new historical energy accounts for the years 1800-1913. We demonstrate that Denmark’s take off at the end of the nineteenth century was relatively energy dependent. We relate this to her well-known agricultural transformation and development through the dairy industry, and thus complement the literature which argues that expensive energy hindered industrialization, by arguing that similar obstacles would have precluded other countries from a more agriculture-based growth. The Danish cooperative creameries, which spread throughout the country over the last two decades of the nineteenth century, were dependent on coal. Although Denmark had next to no domestic coal deposits, we demonstrate that her geography allowed cheap availability throughout the country through imports. On top of this we emphasize that another important source of energy was imported feed for the cows.

Published: The Economic History Review
DOI: http://dx.doi.org/10.1111/ehr.12236
Research Theme: Economic History
Affiliation: External Research Associate

216/2015 Ingrid Henriksen, Eoin McLaughlin and Paul SharpContracts and cooperation: The relative failure of the Irish dairy industry in the late nineteenth century reconsidered

216/2015 Ingrid Henriksen, Eoin McLaughlin and Paul Sharp

Why did the establishment of cooperative creameries in late nineteenth century Ireland fail to halt the relative decline of her dairy industry compared to other emerging producers? This paper compares the Irish experience with that of the market leader, Denmark, and shows how each adopted the cooperative organisational form, but highlights that an important difference was institutional: specifically regarding the enforcement of vertically binding contracts, which are considered to be of vital importance for the successful operation of cooperatives. We argue that this failure, combined with a strong proprietary sector which was opposed to cooperation, reinforced the already difficult conditions for dairying in Ireland due to poor social capital.

Published: European Review of Economic History
DOI: http://dx.doi.org/10.1093/ereh/hev012
Research Theme: Economic History
Affiliation: External Research Associate

215/2015 Jane Humphries and Jacob WeisdorfThe wages of women in England,1260-1850

215/2015 Jane Humphries and Jacob Weisdorf

This paper presents two wage series for unskilled English women workers from 1260 to 1850, the first based on daily wages and the second on the remuneration per day implied in annual service contracts. These two series are compared and the series for women’s daily wages is also compared with evidence for men, revealing interesting trends in the gender gap. These comparisons inform several recent debates: first whether or not “the golden age of the English peasantry” included women; and, second whether or not protoindustrialization and early industrialization provided women with greater opportunities. Our contributions to these debates have implications for wider analyses of growth and wellbeing. For example, historians have argued that the rise in wages that followed the Black Death enticed female servants to delay marriage so contributing to a European Marriage Pattern, a demographic regime believed to enable modern economic growth. However, our findings suggest that servants did not benefit much in the post-plague era and so offers little in support of a ‘girl-powered’ economic breakthrough in England. Similarly, historians have hypothesized that high wages in the eighteenth century explain the labour-saving technological changes which kick-started the industrial revolution and, recently, that women shared in these high wages. Again our findings suggest a less rosy scenario with women who were unable to commit to full-time work losing ground relative to men and to their less constrained peers; such women fell increasingly adrift from any High Wage Economy.

Published: The Journal of Economic History
DOI: http://dx.doi.org/10.1017/S0022050715000662
Research Theme: Economic History
Affiliation: External Research Associate

214/2014 Nicholas CraftsIndustrialization: Why Britain Got There First

214/2014 Nicholas Crafts

This paper provides an introductory overview of the British Industrial Revolution. The dimensions of growth are discussed as well as notable recent explanations for Britain’s primacy. Obstacles to faster growth are considered as well as advantages that were conducive to stronger TFP growth. In this context, reasons for the long delay before steam power had any significant impact on productivity are highlighted. Some implications of Britain’s early start to modern economic growth for subsequent economic performance are noted. The paper concludes that precocious British industrialization is much easier to explain than the timing of the acceleration of technological progress.

Published: Lagatum Institute: History of Capitalism Series
DOI: https://lif.blob.core.windows.net/lif/docs/default-source/publications/an-introduction-to-the-history-of-capitalism-600-1900-ad.pdf?sfvrsn=4
Research Theme: Economic History
Affiliation: CAGE

213/2014 Marcel Fafchamps and Christopher WoodruffIdentifying gazelles: expert panels vs. surveys as a means to identify firms with rapid growth potential

213/2014 Marcel Fafchamps and Christopher Woodruff

Abstract: We conduct a business plan competition to determine whether survey instruments or panel judges are able to predict which participating firms will grow fastest. Participants were required to submit a simple six- to eight-page business plan and then defend that plan before a panel of three or four judges. We surveyed the pool of applicants shortly after they applied, and then one and two years after the business plan competition. We use the follow-up surveys to construct a measure of enterprise growth, and use the baseline surveys and panel scores to construct measures of the potential for growth of the enterprise. We find that a measure of ability correlates quite strongly with future growth, but that the panel scores add to predictive power even after controlling for the measure of ability and other variables from the survey. The survey questions appear to have more power to explain the variance in growth. Participants presenting before the panel were give a chance to win customized management training. Fourteen months after the training, we find no positive effect of the training on growth of the business.

Published: The World Bank Economic Review
DOI: http://dx.doi.org/10.1093/wber/lhw026
Research Theme: Culture and Development
Affiliation: CAGE

212/2014 Suresh de Mel, David McKenzie and Christopher WoodruffWhat Generates Growth in Microenterprises? Experimental Evidence on Capital, Labor and Training

212/2014 Suresh de Mel, David McKenzie and Christopher Woodruff

Previous research shows that capital injections lead to higher profits in microenterprises, but to little sustained growth. We conduct an experiment which provides overlapping treatments designed to provide capital, incentives to hire new employees and management training. Working with a sample of 1,525 Sri Lankan enterprises with two or fewer paid employees at baseline, we find that the treatments have largely temporary effects, suggesting that while they may speed convergence to a steady state, they do not appear to put firms on a different growth path. Wage incentives lead to higher levels of employment, but not to higher profits, suggesting that the typical firm does not face constraints to hiring which result in the marginal product of labor exceeding the market wage rate. We use data from surveys of wage workers and SME owners conducted at the same time as the baseline survey to estimate characteristics associated with entrepreneurial ability. We find that highability firms, if anything, benefit less from the treatments. The results are consistent with the view of the world illuminated by Lucas‟ 1978 model of firm size distribution.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

211/214 Arthur Blouin and Rocco MacchiavelloTropical Lending: International Prices, Strategic Default and Credit Constraints among Coffee Washing Stations

211/214 Arthur Blouin and Rocco Macchiavello

We use detailed contract level data on a portfolio of 197 coffee washing stations in 18 countries to identify the sources and consequences of credit markets imperfections. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Strategic default is deterred by relationships with the lender and foreign buyers: the value of informal enforcement amounts to 50% of the value of the sale contract for repaying borrowers. A RDD shows that firms are credit constrained. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

210/214 Thomas Plümper and Eric NeumayerIncome Inequality, Redistribution and their Effect on Inequality in Longevity

210/214 Thomas Plümper and Eric Neumayer

Objectives: We examined the effects of market income inequality (income inequality before taxes and transfers) and income redistribution via taxes and transfers on inequality in longevity. Methods: Life tables were used to compute Gini coefficients of longevity inequality for all individuals and for individuals that survived at least to the age of ten. Longevity inequality was regressed on market income inequality and income redistribution controlling for a range of potential confounders in a cross-sectional time-series sample of up to 29 predominantly Western developed countries and up to 37 years. Results: Income inequality before taxes and transfers had a positive effect on inequality in the number of years lived, while income redistribution (the difference between market income inequality and income inequality after taxes and transfers have been accounted for) had a negative effect on longevity inequality. Conclusions: Governments can reduce inequality in the number of years lived not only via public health policies, but also via their influence on market income inequality and the redistribution of incomes from the relatively rich to the relatively poor.

Published: American Journal of Public Health
DOI: https://ajph.aphapublications.org/doi/full/10.2105/AJPH.2015.302849?af=R
Research Theme: Political Economy
Affiliation: External Research Associate

209/2014 Morgan Kelly and Cormac Ó GrádaReady for Revolution? The English Economy before 1800

209/2014 Morgan Kelly and Cormac Ó Gráda

Sustained economic growth in England can be traced back to the early seventeenth century. That earlier growth, albeit modest, both generated and was sustained by a demographic regime that entailed relatively high wages, and by an increasing endowment of human capital in the form of a relatively adaptable and skilled labour force. Healthier and savvier English workers were better equipped to profit from the technological possibilities available to them, and to build on them. Technological change and economic growth stemmed from such human capital rather than Boserupian forces. They were the product of England’s resource endowment and its institutions.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

208/2014 Marco Pani and Carlo PerroniEnergy Subsidies and Policy Commitment in Political Equilibrium

208/2014 Marco Pani and Carlo Perroni

Because energy subsidies affect incentives to invest in energy-saving equipment and technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them, which will in turn depress investment by forward-looking agents. Reforming energy subsidies thus requires overcoming a policy commitment problem. In this paper we show that, even when commitment is feasible in principle, it may fail to materialize in a political equilibrium due to politicians’ re-election incentives. In particular, it will be those politicians who are comparatively less favorable to energy subsidies who may fail to commit to phase them out.

Published: Energy Economics
DOI: http://dx.doi.org/10.1016/j.eneco.2017.12.013
Research Theme: Political Economy
Affiliation: CAGE

207/2014 Wiji Arulampalam, Valentina Corradi and Daniel GutknechtModelling Heaped Duration Data: An Application to Neonatal Mortality

207/2014 Wiji Arulampalam, Valentina Corradi and Daniel Gutknecht

In 2005, the Indian Government launched a conditional cash-incentive program to encourage institutional delivery. This paper studies the effects of the program on neonatal mortality using district-level household survey data. We model mortality using survival analysis, paying special attention to the substantial heaping present in the data. The main objective of this paper is to provide a set of sufficient conditions for identification and consistent estimation of the baseline hazard accounting for heaping and unobserved heterogeneity. Our identification strategy requires neither administrative data nor multiple measurements, but a correctly reported duration and the presence of some at segments in the baseline hazard which includes this correctly reported duration point. We establish the asymptotic properties of the maximum likelihood estimator and provide a simple procedure to test whether the policy had (uniformly) reduced mortality. While our empirical findings do not confirm the latter, they do indicate that accounting for heaping matters for the estimation of the baseline hazard.

Published: Journal of Econometrics
DOI: https://doi.org/10.1016/j.jeconom.2017.06.016
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

206/2014 Amrita Dhillon, Ronald Peeters and Ayse Muge YukselOvercoming moral hazard with social networks in the workplace: An experimental approach

206/2014 Amrita Dhillon, Ronald Peeters and Ayse Muge Yuksel

The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a combined field-laboratory experiment that social networks are used by employers to reduce worker moral hazard. The worker chooses an effort level given a fixed wage under different settings of social proximity. Social proximity is captured using actual Facebook friendship information revealed anonymously to subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring about 80% of the time. In keeping with our predictions, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate moral hazard and directed altruism as the main driving forces for these results.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

205/2014 Cormac Ó GrádaDid Science Cause the Industrial Revolution?

205/2014 Cormac Ó Gráda
Published: Journal of Economic Literature
DOI: http://dx.doi.org/10.1257/jel.54.1.224
Research Theme: Economic History
Affiliation: External Research Associate

204/2014 Nicholas CraftsProductivity Growth during the British Industrial Revolution: Revisionism Revisited

204/2014 Nicholas Crafts

This paper re-examines output and productivity growth during the British industrial revolution in the light of recent research. Revised estimates are presented which incorporate new findings on the structure of employment, in particular, that the level of industrialization in the mid-18th century is now known to be considerably higher than was assumed in earlier work. This implies that industrial labour productivity growth was faster than believed by authors of the 1980s but still slower than earlier writers claimed. It is shown that in most important respects the Crafts-Harley view of macroeconomic growth remains basically intact.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

203/2014 T. Huw Edwards and Carlo PerroniMarket Integration, Wage Concentration, and the Cost and Volume of Traded Machines

203/2014 T. Huw Edwards and Carlo Perroni

We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs ("machines") used to carry out production tasks, causing workers with different comparative abilities to be sorted across a narrower range of tasks and raising the concentration of earnings. The accompanying shift in input use further expands the range of traded varieties, which further lowers the cost of machines. Effects on the volume of intermediate goods trade and the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

202/2014 Leandro Prados de la EscosuraMismeasuring Long Run Growth: The Bias from Spliced National Accounts

202/2014 Leandro Prados de la Escosura

Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.

Published: Cliometrica
DOI: http://dx.doi.org/10.1007/s11698-015-0131-4
Research Theme: Economic History
Affiliation: External research Associate

201/2014 Carlo Perroni, Ganna Pogrebna, Sarah Sandford and Kimberley ScharfAre Donors Afraid of Charities’ Core Costs? Scale Economies in Non-profit Provision and Charity Selection

201/2014 Carlo Perroni, Ganna Pogrebna, Sarah Sandford and Kimberley Scharf

We study contestability in non-profit markets where non-commercial providers supply a homogeneous collective good or service through increasing-returns-to-scale technologies. Unlike in the case of for-profit markets, in the non-profit case the absence of price-based sales contracts between providers and donors means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.

Published: The Economic Journal
DOI: https://doi.org/10.1093/ej/uez006
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

200/2014 - David RuedaFood Comes First, Then Morals: Redistribution Preferences, Altruism and Group Heterogeneity in Western Europe

200/2014 - David Rueda

Altruism is an important omitted variable in much of the Political Economy literature. While material self-interest is the base of most approaches to redistribution (first affecting preferences and then politics and policy), there is a paucity of research on inequality aversion. I propose that other-regarding concerns influence redistribution preferences and that: (1) they matter most to those in less material need and (2) they are conditional on the identity of the poor. Altruism is a luxury good most relevant to the rich, and it is most influential when the recipients of benefits are similar to those financing them. Using data from the European Social Survey from 2002 to 2010, I will show that group homogeneity magnifies (or limits) the importance of altruism for the rich. In making these distinctions between the poor and the rich, the arguments in this paper challenge some influential approaches to the politics of inequality.

Published: The Journal of Politics
DOI: https://www.journals.uchicago.edu/doi/abs/10.1086/694201?journalCode=jop
Research Theme: Political Economy
Affiliation: External Research Associate

199/2014 - Nicholas CraftsReducing High Public Debt Ratios: Lessons from UK Experience

199/2014 - Nicholas Crafts

This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate/growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following World War II but remained stubbornly high despite large budget surpluses with price deflation after World War I. Implications for policymakers today are that averting price deflation is a high priority and that supply-side policies that raise growth could play an important part in debt reduction.

Published: Fiscal Studies, Journal of Applied Public Economics
DOI: http://dx.doi.org/10.1111/j.1475-5890.2015.12064
Research Theme: Economic History
Affiliation: CAGE

198/2014 - Tirthankar RoyTechnology in Colonial India: Three Discourses

198/2014 - Tirthankar Roy

The historiography of the development and diffusion of technology in the modern world has grown as a collection of discourses, which differ in points of emphasis. The three common points of emphasis are state intervention, cultural makeup of societies, and economic calculations. The disjointedness characterizes the literature on colonial India (1857-1947) as well, complicated further by the need to understand the role that British colonial rule played in these processes. The present survey discusses, compares, and evaluates the diverse narratives.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

197/2014 - Clément de ChaisemartinTolerating defiance? Local average treatment effects without monotonicity

197/2014 - Clément de Chaisemartin

We know that instrumental variable (IV) estimates a causal effect if the instrument satisfies a monotonicity condition. When this condition is not satisfied, we only know that IV estimates the difference between the effect of the treatment in two groups. This difference could be a very misleading measure of the treatment effect: it could be negative, even when the effect is positive in both groups. There are a large number of studies in which monotonicity is implausible. One might then question whether we should trust their estimates. I show that IV estimates a causal effect under a much weaker condition than monotonicity. I outline three criteria applied researchers can use to assess whether this condition is applicable in their studies. When this weaker condition is applicable, they can credibly interpret their estimates as causal effects. When it is not, they should interpret their results with caution.

Published: Quantitative Economics
DOI: http://dx.doi.org/10.3982/QE601
Research Theme: Culture and Development
Affiliation: CAGE

196/2014 - Eugenio Proto and Andrew J. OswaldNational Happiness and Genetic Distance: A Cautious Exploration

196/2014 - Eugenio Proto and Andrew J. Oswald

This paper examines a famous puzzle in social science. Why do some nations report such high happiness? Denmark, for instance, regularly tops the league table of rich nations’ well-being; Great Britain and the US enter further down; France and Italy do relatively poorly. Yet the explanation for this ranking -- one that holds even after adjustment for GDP and socio-economic and cultural variables -- remains unknown. We explore a new avenue. Using data on 131 countries, we cautiously document a range of evidence consistent with the hypothesis that certain nations may have a genetic advantage in well-being.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12383
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

195/2014 - Luigi PascaliThe Wind of Change: Maritime Technology, Trade and Economic Development

195/2014 - Luigi Pascali

The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the steamship produced an asymmetric change in trade distances among countries. Before the invention of the steamship, trade routes depended on wind patterns. The introduction of the steamship in the shipping industry reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and a completely novel set of data on shipping times, trade, and development that spans the great majority of the world between 1850 and 1900, I find that 1) the adoption of the steamship was the major reason for the firrst wave of trade globalization, 2) only a small number of countries that were characterized by more inclusive institutions benefited from globalization, and 3) globalization exerted a negative effect on both urbanization rates and economic development in most other countries.

Published: American Economic Review
DOI: http://dx.doi.org/10.1257/aer.20140832
Research Theme: Economic History
Affiliation: CAGE

194/2014 - Abigail Payne, Kimberley Scharf and Sarah SmithOnline fundraising - the perfect ask?

194/2014 - Abigail Payne, Kimberley Scharf and Sarah Smith

Online platforms provide an opportunity for individuals to fundraise for their favourite charities and charitable causes. In recent years, individual charity fundraising through these platforms has become a mass activity. Using JustGiving, the UK’s biggest charity fundraising platform, 21 million people have raised £1.5 billion for over 13,000 charities and causes since the website was set up in 2001.Recent figures suggest that online donations are still a relatively small part of overall giving; an estimated 7% of the total dollar amount given in the US and used by 7% of UK donors. But online and text giving are growing at a faster rate than total donations, indicating that this share will grow.In this paper, we present insights on individual fundraising from micro-econometric analysis of JustGiving data. The analysis exploits a number of different data sub-samples. The largest comprises 416,313 fundraisers who were active JustGiving users at the time of an online survey that ran from October 2010 – April 2011. We also analyse data on 10,597 fundraisers who ran in the 2010 London marathon and from a sample of 39,238 fundraisers who had linked their fundraising pages to their Facebook page. Details on all these samples are given in the Appendix.The focus of the analysis is what determines fundraising success. The "perfect ask" in the title of the paper suggests that there may be a winning formula that could easily be replicated. In practice, much of the power of individual fundraising comes from its very personal – and idiosyncratic – nature, but there may nevertheless be some useful lessons to be learned from studying how fundraisers and donors behave. A "typical" fundraising page (the median) has 14 donations and raises £245. But, as shown in Table 1, there is substantial variation in the number of donations and the amounts raised. The top 10% of pages raise £1,343 or more; the bottom 10% manage less than £38. In this paper, we show that at least some of this variation can be linked to specific factors having to do with the individual’s fundraising strategy (for example, the type of event they do and whether or not they set a fundraising target). We also show that social interactions are crucially important – whether between the fundraiser and donors or between donors. Individual fundraising is a uniquely personal and interactive form of fundraising, introducing new social dynamics into fundraising.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

193/2014 - Kimberley Scharf and Sarah SmithRelational Warm Glow and Giving in Social Groups

193/2014 - Kimberley Scharf and Sarah Smith

We study charitable giving within social groups. Exploiting a unique dataset, we establish three key relationships between social group size and fundraising outcomes:(i) a positive relationship between group size and the total number of donations; (ii) anegative relationship between group size and the amount given by each donor; (iii) no relationship between group size and the total amount raised by the fundraiser. We rule out classic free-riding to explain these relationships since the number of social group members is only a subset of total contributors. Instead, the findings are consistent with the notion that giving in social groups is motivated by "relational" warm glow.

Published: Journal of Public Economics
DOI: https://doi.org/10.1016/j.jpubeco.2016.06.001
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

192/2014 - Jordi Vidal-RobertLong-run effects of the Spanish Inquisition

192/2014 - Jordi Vidal-Robert

Using a newly collected dataset on inquisitorial activity for seven regions, fourteen provinces and 947 municipalities, I analyze the long-term economic consequences of the Spanish Inquisition (1478-1834). I show that inquisitorial activity is negatively associated to regional and provincial economic growth (an increase of a thousand inquisitorial trials is associated with 3% to 5% lower urbanization rates). At the municipal level, I find that municipalities a.ected by the Inquisition experienced an annual population growth rate 0.11% lower than their counterparts. This result is robust when controlling for alternative explanatory factors, such as pre-existent religiosity and proxies for trade activity. I explore three channels through which the Inquisition may have had an impact on economic outcomes. While inquisitorial activity is not linked to levels of trust or social polarization, I find it is negatively associated with the adoption of new technologies and the creation of municipal centres of cultural transmission.

Published:
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Research Theme: Economic History
Affiliation: CAGE

191/2014 - Dilip V. Jeste and Andrew J. OswaldIndividual and Societal Wisdom: Explaining the Paradox of Human Aging and High Well-Being

191/2014 - Dilip V. Jeste and Andrew J. Oswald

Objective: Although human aging is characterized by loss of fertility and progressive decline in physical abilities, later life is associated with better psychological health and well-being. Furthermore, there has been an unprecedented increase in average lifespan over the past century without corresponding extensions of fertile and healthy age spans. We propose a possible explanation for these paradoxical phenomena.Method: We reviewed the relevant literature on aging, well-being, and wisdom.Results: An increase in specific components of individual wisdom in later life may make up for the loss of fertility as well as declining physical health. However, current data on the relationship between aging and individual wisdom are not consistent, and do not explain increased longevity in the general population during the past century. We propose that greater societal wisdom (including compassion) may account for the notable increase in average lifespan over the last century. Data in older adults with serious mental illnesses are limited, but suggest that many of them too experience improved psychosocial functioning, although their longevity has not yet increased, suggesting persistent stigma against mental illness and inadequate societal compassion.Conclusions: Research should focus on the reasons for discrepant findings related to ageassociated changes in different components of individual wisdom; also, more work is needed on the construct of societal wisdom. Studies of wisdom and well-being are warranted in older people with serious mental illnesses, along with campaigns to enhance societal compassion for these disenfranchised individuals. Finally, effective interventions to enhance wisdom need to be developed and tested.

Published: Psychiatry
DOI: https://guilfordjournals.com/doi/10.1521/psyc.2014.77.4.317
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

190/2014 - Eugenio Proto and Aldo RustichinibCooperation and Personality

190/2014 - Eugenio Proto and Aldo Rustichinib

Cooperating behavior may be fostered by personality traits reflecting either favorable inclination to others or willingness to comply with norms and rules. We test the relative importance of these two factors in an experiment where subjects provide real mental effort in two treatments with identical task, differing only by whether others' payment is affected. If the first hypothesis is true, subjects reporting high Agreeableness score should put more effort; if the second is true, reporting higher Conscientiousness should predict more effort. We find experimental support for the second hypothesis but not for the first, as subjects reporting high Altruism do not behave consistently with this statement.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

189/2014 - Francisco J. Pino and Jordi Vidal-RobertHabemus Papam? Polarization and Conflict in the Papal States

189/2014 - Francisco J. Pino and Jordi Vidal-Robert

We study the effect of divisions within the elite on the probability of internal conflict in the Papal States between 1295 and 1846. We assemble a new database using information on cardinals that participated in conclaves during this period, and construct measures of polarization and fractionalization based on the cardinals’ places of birth. The deaths of popes and cardinals provide plausible exogenous variation in the timing of the conclave and the composition of the College of Cardinals, which we exploit to analyze the causal effect of a divided conclave on conflict. We find that an increase of one standard deviation in our measure of polarization raised the likelihood of internal conflict by between 2 and 3 percent in a given year and by up to 15 percent in a given papacy. The effect is largest in the initial years after the conclave, to gradually vanish over time. Cardinals’ influence on the politics of the Papal States decreased after reforms introduced between 1586 and 1588. Our measure of religious productivity, however, is negatively and significantly linked to polarization in the post-reform period. These reforms were successful in shifting the effect of divisions among the elite of one of the largest and oldest organizations from violent conflict to religious matters.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

188/2014 - Mark HarrisonMyths of the Great War

188/2014 - Mark Harrison

We review some “myths” of the Great War of 1914 to 1918: that the war broke out inadvertently, that the western front saw needless slaughter, that the Allies used the food weapon to strangle Germany, and that the peace treaty that ended the war caused the rise of Hitler and the still greater war that followed.

Published: Studies in Economic History
DOI: http://dx.doi.org/10.1007/978-981-10-1605-9_6
Research Theme: Economic History
Affiliation: CAGE

187/2014 - Terence C. Cheng, Nattavudh Powdthavee and Andrew J. OswaldLongitudinal Evidence for a Midlife Nadir in Human Well-being: Results from Four Data Sets

187/2014 - Terence C. Cheng, Nattavudh Powdthavee and Andrew J. Oswald

There is a large amount of cross-sectional evidence for a midlife low in the life cycle of human happiness and well-bein (a ‘U shape’). Yet no genuinely longitudinal inquiry has uncovered evidence for a U-shaped pattern. Thus some researchers believe the U is a statistical artefact. We re-examine this fundamental cross-disciplinary question. We suggest a new test. Drawing on four data sets, and only within-person changes in well-being, we document powerful support for a U-shape in unadjusted longitudinal data without the need for regression equations. The paper’s methodological contribution is to exploit the first-derivative properties of a well-being equation.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12256
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

186/2014 - Sascha O. Becker, Markus Nagler and Ludger WoessmannEducation Promoted Secularization

186/2014 - Sascha O. Becker, Markus Nagler and Ludger Woessmann

Why did substantial parts of Europe abandon the institutionalized churches around 1900? Empirical studies using modern data mostly contradict the traditional view that education was a leading source of the seismic social phenomenon of secularization. We construct a unique panel dataset of advanced-school enrollment and Protestant church attendance in German cities between 1890 and 1930. Our cross-sectional estimates replicate a positive association. By contrast, in panel models where fixed effects account for time-invariant unobserved heterogeneity, education – but not income or urbanization – is negatively related to church attendance. In panel models with lagged explanatory variables, educational expansion precedes reduced church attendance.

Published: Journal of Economic Growth
DOI: https://doi.org/10.1007/s10887-017-9142-2
Research Theme: Economic History
Affiliation: CAGE

185/2014 - Nattavudh Powdthavee and Andrew J. OswaldDoes Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners

185/2014 - Nattavudh Powdthavee and Andrew J. Oswald

The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

182/2014 - Richard Dorsett and Andrew J. OswaldHuman well-being and in-work benefits: A randomized controlled trial

182/2014 - Richard Dorsett and Andrew J. Oswald

Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological well-being, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioral framework consistent with our findings and reflect on implications for policy.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

184/2014 - Clement de Chaisemartin and Xavier D'HoultfoeuilleFuzzy Changes-in-Changes

184/2014 - Clement de Chaisemartin and Xavier D'Houltfoeuille

The changes-in-changes model extends the widely used difference-in-differences to situations where outcomes may evolve heterogeneously. Contrary to difference-in-differences, this model is invariant to the scaling of the outcome. This paper develops an instrumental variable changes-in-changes model, to allow for situations in which perfect control and treatment groups cannot be denied, so that some units may be treated in the control group, while some units may remain untreated in the treatment group. This is the case for instance with repeated cross sections, if the treatment is not tied to a strict rule. Under a mild strengthening of the changes-in-changes model, treatment effects in a population of compliers are point identified when the treatment rate does not change in the control group, and partially identified otherwise. Simple plug-in estimators of treatment effects are proposed. We show that they are asymptotically normal, and that the bootstrap is valid. Finally, we use our results to reanalyze findings in Field (2007) and Dufflo (2001).

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

183/2014 - Amrita Dhillon, Ronald Peeters and Ayse Muge YukselOvercoming Moral Hazard with Social Networks in the Worksplace: An Experimental Approach

183/2014 - Amrita Dhillon, Ronald Peeters and Ayse Muge Yuksel

The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a lab experiment that suggests quite strongly that social networks are used by employers to reduce worker moral hazard. We capture moral hazard with a dictator game between the referrer and worker. The worker chooses how much to return under different settings of social proximity. Social proximity is captured using Facebook friendship information gleaned anonymously from subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring relatively more when they know that the referrer has access to friends, and are willing to delegate more often when the social proximity between referrer and worker is potentially higher. In keeping with this expectation, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate directed altruism as the only reason for these results.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

181/2014 - Kris James MitchenerThe Evolution of Bank Supervision: Evidence from U.S. States

181/2014 - Kris James Mitchener

We use a novel data set spanning 1820-1910 to examine the origins of bank supervision and assess factors leading to the creation of formal bank supervisory institutions across U.S. states. We show that it took more than a century for the widespread adoption of independent supervisory institutions tasked with maintaining the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks propelled policymakers to adopt costly and permanent supervisory institutions.

Published: The Journal of Economic History
DOI: http://dx.doi.org/10.1017/S0022050715001126
Research Theme: Culture and Development
Affiliation: External Research Associate

180/2014 - Marc-Andreas MuendlerExport or Merge? Proximity vs. Concentration in Product Space

180/2014 - Marc-Andreas Muendler

This paper proposes a proximity-concentration tradeoff in product space as a determinant of horizontal foreign direct investment (FDI). Firms that enter a foreign market by exporting are able to capture consumer surplus from introducing a differentiated product with characteristics that the incumbent cannot match. In relatively globalized product space, in contrast, consumers perceive an entrant’s difference to existing products as less pronounced, so a consumer’s virtual distance costs in product space are lower and a merger with an incumbent (horizontal FDI) offers pricing power that allows the entrant to extract consumer rent. Lower physical trade costs of shipping make Bertrand price competition fiercer in differentiated product space and can provide an additional incentive for a merger. A basic product space model with a linear Hotelling setup can therefore explain why FDI has become more frequent in recent periods in the presence of falling trade costs. Cross-border merger and acquisitions data support the model’s prediction that horizontal FDI grows relatively faster than exports in differentiated goods industries, compared to homogeneous-goods industries.

Published: Asia-Pacific Journal of Accounting & Economics
DOI: http://dx.doi.org/10.1080/16081625.2014.874939
Research Theme: Culture and Development
Affiliation: External Research Associate

179/2014 - Nicholas Crafts and Alan HughesIndustrial Policy for the Medium to Long-term

179/2014 - Nicholas Crafts and Alan Hughes

This report reviews the market failure and systems failure rationales for industrial policy and assesses the evidence on part experience of industrial policy in the UK. In the light of this, it reviews options for reshaping the design and delivery of industrial policy towards UK manufacturing. These options are intended to encourage a medium- to long-term perspective across government departments and to integrate science, innovation and industrial policy.

Published: GO-Science Foresight Future of manufacturing project
DOI: http://www.gov.uk/government/publications/future-manufacturing-industrial-policy
Research Theme: Economic History
Affiliation: CAGE

178/2013 - Mariana Blanco, Patricio S. Dalton and Juan F. VargasDoes the Unemployment Benefit Institution affect the Productivity of Workers? Evidence from a Field Experiment

178/2013 - Mariana Blanco, Patricio S. Dalton and Juan F. Vargas

We investigate whether and how the type of unemployment benefit institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we find that having an unemployment benefit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benefit. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra nonmonetary incentive for workers under Welfare to put a higher effort in their work.

Published: Management Science
DOI: http://doi.org/10.1287/mnsc.2016.2511
Research Theme: Culture and Development
Affiliation: External Research Associate

177/2013 - Bishnupriya Gupta and Anand SwamyUnfree Labour: Did Indenture Reduce Labour Supply to Tea Plantations in Assam?

177/2013 - Bishnupriya Gupta and Anand Swamy

Migration to tea plantations in Assam in the 19th century used indentured contracts. These contracts differed by conditions of harshness. Migration under the Special Act gained notoriety by giving tea planter the right of private arrest. Using a new set of migration by types of contract, the paper assesses if harsh terms of indenture discouraged labour flows. We find that regions using the harsh contract saw lower response to rise in the price of tea. Disaggregating by types of recruiter, we find that the response to market recruitment was high in all regions, but response to recruitment using community networks is statistically insignificant, suggesting that informational asymmetries may be an explanation for continuing migration despite concerns raised by the nationalist movement, social reformers and policy makers.

Published: A New Economic History of Colonial India
DOI: ISBN 1317674324
Research Theme: Economic History
Affiliation: CAGE

176/2013 - Alexander Klein and Sheilagh OgilvieOccupational Structure in the Czech Lands Under the Second Serfdom

176/2013 - Alexander Klein and Sheilagh Ogilvie

A shift in occupational structure towards non-agricultural activities is widely viewed as a key component of European economic growth during the early modern ‘Little Divergence’. Yet little is known about this process in those parts of eastern-central Europe that experienced the early modern ‘second serfdom’, the massive increase in the institutional powers of landlords over the rural population. We analyze non-agricultural occupations under the second serfdom using data on 6,983 Bohemian villages in 1654. Bohemia resembled other eastern-central, nordic and southern European economies in having a lower percentage of non-agricultural activities than western Europe. But Bohemian serfs engaged in a wide array of industrial and commercial activities whose intensity varied significantly with village characteristics. Nonagricultural activity showed a significant positive relationship with village size, pastoral agriculture, sub-peasant social strata, Jews, freemen, female household heads, and village mills, and a significant negative relationship with arable agriculture and urban agglomerations. Non-agricultural activity was also positively associated with landlord presence in the village, although the relationship turned negative at higher values and landlord presence reversed the positive effects of female headship and mills. Under the second serfdom, landlords encouraged serf activities from which they could extort rents, while stifling others which threatened their interests.

Published: The Economic History Review
DOI: http://dx.doi.org/10.1111/ehr.12118
Research Theme: Economic History
Affiliation: External Research Associate

175/2013 - Francesco Cinnirella and Erik HornungLandownership Concentration and the Expansion of Education

175/2013 - Francesco Cinnirella and Erik Hornung

This paper studies the effect of landownership concentration on school enrollment for nineteenth century Prussia. Prussia is an interesting laboratory given its decentralized educational system and the presence of heterogeneous agricultural institutions. We find that landownership concentration, a proxy for the institution of serfdom, has a negative effect on schooling. This effect diminishes substantially towards the end of the century. Causality of this relationship is confirmed by introducing soil texture to identify exogenous farm-size variation. Panel estimates further rule out unobserved heterogeneity. We present several robustness checks which shed some light on possible mechanisms.

Published: Journal of Development Economics
DOI: http://dx.doi.org/10.1016/j.jdeveco.2016.03.001
Research Theme: Economic History
Affiliation: External Research Associate

174/2013 - Francesco Cinnirella, Marc P. B. Klemp and Jacob L. WeisdorfMalthus in the Bedroom: Birth Spacing as a Preventive Check

174/2013 - Francesco Cinnirella, Marc P. B. Klemp and Jacob L. Weisdorf

The role of demography in long-run economic growth has been subject to increasing attention. This paper questions the received wisdom that marital birth control was absent before the nineteenth century. Using an extensive individual-level dataset covering 270,000 births from 80,000 families we show that higher national and sector-specific real wages reduced spacing between births in England over more than three centuries, from 1540-1850. This effect is present among both poor and rich families and is robust to a wide range of control variables accounting for external factors influencing a couple’s fertility such as malnutrition, climate shocks and the disease environment.

Published: Demography
DOI: http://dx.doi.org/10.1007/s13524-017-0556-4
Research Theme: Economic History
Affiliation: External Research Associate

173/2013 - Léonard Wantchékon and Omar García-PonceCritical Junctures: Independence Movements and Democracy in Africa

173/2013 - Léonard Wantchékon and Omar García-Ponce

We show that current levels of democracy in Africa are linked to the nature of its independence movements. Using different measures of political regimes and historical data on anti-colonial movements, we find that countries that experienced rural insurgencies tend to have autocratic regimes, while those that faced urban protests tend to have more democratic institutions. We provide evidence for causality in this relationship by using rough terrain as an instrument for rural insurgency, and by performing a sensitivity analysis. Finally, the evidence suggests that the adoption of rural insurgency perpetuated the use of violence as a form of conflict resolution.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: External Research Associate

172/2013 - Stephen Broadberry and Leigh GardnerAfrica’s Growth Prospects in a European mirror: a Historical Perspective

172/2013 - Stephen Broadberry and Leigh Gardner

Drawing on recent quantitative research on Europe reaching back to the medieval period, and noting a relationship between the quality of institutions and economic growth, this paper offers a reassessment of Africa’s growth prospects. Periods of positive growth driven by trade, followed by growth reversals which wiped out the gains of the previous boom, characterized pre-modern Europe as well as twentieth century Africa. Since per capita incomes in much of sub-Saharan Africa are currently at the level of medieval Europe, which did not make the breakthrough to modern economic growth until the nineteenth century, we caution against too optimistic a reading of Africa’s recent growth experience. Without the institutional changes necessary to facilitate structural change, growth reversals continue to pose a serious threat to African prosperity. Only if growth continues after a downturn in Africa’s terms of trade can we be sure that the corner has been turned.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

171/2013 - Mariaelisa Epifanio and Vera E. TroegerHow much do children really cost? Maternity benefits and career opportunities of women in academia

171/2013 - Mariaelisa Epifanio and Vera E. Troeger

Motherhood and professional achievements appear as conflicting goals even for academic women. This project explores this tension by focusing on a set of provisions on parental and maternity leaves across 165 higher education institutions in the UK. Generous maternity provisions generate countervailing incentives for female academics. On the one hand, advantageous policies can foster women’s productivity in terms of research outcomes allowing them to take time out of work without income and career break concerns. On the other hand, women can exploit generous provisions without generating returnable results for the academic institution. We argue that adverse selection problems lead universities to differentiate among academic staff by offering two different types of maternity provisions (more vs less generous maternity leaves) in order to "test" women’s commitment and research ability before offering permanent contracts. Our results support this this line of argumentation. We also find that generous maternity leaves and childcare provisions positively affect the number of women at research and professorship levels.

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DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

170/2013 - Mark Harrison and Inga ZaksauskienėCounter-Intelligence in a Command Economy

170/2013 - Mark Harrison and Inga Zaksauskienė

We provide the first thick description of the KGB’s counter-intelligence function in the Soviet command economy. Based on documentation from Lithuania, the paper considers KGB goals and resources in relation to the supervision of science, industry, and transport; the screening of business personnel; the management of economic emergencies; and the design of economic reforms. In contrast to a western market regulator, the role of the KGB was to enforce secrecy, monopoly, and discrimination. As in the western market context, regulation could give rise to perverse incentives with unintended consequences. Most important of these may have been adverse selection in the market for talent. There is no evidence that the KGB was interested in the costs of its regulation or in mitigating the negative consequences.

Published: The Economic History Review
DOI: http://dx.doi.org/10.1111/ehr.12113
Research Theme: Economic History
Affiliation: CAGE

169/2013 - Federica Liberini, Michela Redoano and Eugenio ProtoHappy Voters

169/2013 - Federica Liberini, Michela Redoano and Eugenio Proto

169/2013 - Federica Liberini, Michela Redoano and Eugenio ProtoIn this paper we investigate whether or not recent initiatives taken by governments and international organizations to come up with indicators of Subjective Well Being (SWB) to inform policy makers go in the same direction as citizens expectations on what policy makers should do. We test retrospective voting hypotheses by using standard measures of SWB as a proxy for utility instead of the commonly used indicators of economic and nancial circumstances. Using the British Household Panel Survey Data we nd that citizens who are satis ed with their life are more likely to cast their vote in favour of the ruling party, even taking into account ideological preferences. We show that SWB in uences voting decision even when the event a ecting the SWB is beyond the government's control, like the spouse death.

Published: Journal of Public Economics
DOI: http://dx.doi.org/10.1016/j.jpubeco.2016.11.013
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

168/2013 - Mirko DracaReagan's Innovation Dividend? Technological Impacts of the 1980s US Defense Build-Up

168/2013 - Mirko Draca

US government spending since World War II has been characterized by large investments in defense related goods, services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper looks at the impact of military procurement spending on corporate innovation among publicly traded firms for the period 1966-2003. The study utilizes a major database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts – chiefly centered around the Reagan defense build-up of the 1980s – are used as a source of exogenous variation in firm-level procurement receipts. Estimates indicate that defense procurement has a positive absolute impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation. In terms of magnitudes, the contribution of defense procurement to innovation peaked during the early Reagan build-up, accounting for 11.4% of the total change in patenting intensity and 6.5% for R&D. This compares to a defense sector share in output of around 4%. The later defense cutbacks under Bush Senior and Clinton then curbed the growth in technological intensity by around 2%.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

167/2013 - Gregory S.Crawford, Nicola Pavanini and Fabiano SchivardiAsymmetric Information and Imperfect Competition in the Loan Market

167/2013 - Gregory S.Crawford, Nicola Pavanini and Fabiano Schivardi

We measure the consequences of asymmetric information in the Italian market for small business lines of credit. Exploiting detailed, proprietary data on a random sample of Italian firms, the population of medium and large Italian banks, individual lines of credit between them, and subsequent individual defaults, we estimate models of demand for credit, loan pricing, loan use, and firm default based on the seminal work of Stiglitz and Weiss (1981) to measure the extent and consequences of asymmetric information in this market. While our data include a measure of observable credit risk comparable to that available to a bank during the application process, we allow firms to have private information about the underlying riskiness of their project. This riskiness influences banks’ pricing of loans as higher interest rates attract a riskier pool of borrowers, increasing aggregate default probabilities. Data on default, loan size, demand, and pricing separately identify the distribution of private riskiness from heterogeneous firm disutility from paying interest. Preliminary results suggest evidence of asymmetric information, separately identifying adverse selection and moral hazard. We use our results to quantify the impact of asymmetric information on pricing and welfare, and the role imperfect competition plays in mediating these effects.

Published: American Economic Review
DOI: https://www.aeaweb.org/articles?id=10.1257/aer.20150487
Research Theme: Culture and Development
Affiliation: CAGE

166/2013 - Peter J. Hammond, Federica Liberini and Eugenio ProtoDo Happier Britons Have More Income? First-Order Stochastic Dominance Relations

166/2013 - Peter J. Hammond, Federica Liberini and Eugenio Proto

Using British Household Panel Survey data, for subjects not reporting the highest permitted satisfaction level, we show that the conditional income distribution given a higher reported level of life satisfaction first-order stochastically dominates the corresponding conditional distribution given any lower satisfaction level. Subjects reporting the highest satisfaction level, however, have an income distribution dominated by distributions for some less satisfied individuals. Interestingly, this "top anomaly" is undetectable by standard ordered probit analysis. An alternative binary probit model for reporting maximal satisfaction suggests a possible explanation: more educated subjects not only tend to have higher income, but are also less likely to report maximal satisfaction.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

165/2013 - Natalie Chen and Luciana JuvenalQuality, Trade, and Exchange Rate Pass-Through

165/2013 - Natalie Chen and Luciana Juvenal

This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. We combine a unique data set of highly disaggregated Argentinean firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we find that firms significantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These results remain robust to different measures of quality, samples, specifications and to the potential endogeneity of quality. To motivate our Findings we extend the model of Corsetti and Dedola (2005) with local distribution costs and allow firms to export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. Overall our results help to explain the low exchange rate pass-through that is typically observed in aggregate data.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2016.02.003
Research Theme: Culture and Development
Affiliation: CAGE

164/2013 - Debin Ma and Weipeng YuanDiscovering Chinese Economic History from Footnotes: the Living Tale of a Private Merchant Archive (1800-1850)

164/2013 - Debin Ma and Weipeng Yuan

This article recounts our unique encounter –through the last seven years of our research - with the Tong Taisheng (统泰升) merchant account books in the Ninjing county of Northern China in 1800-1850. By tracing the personal history of the original owner or donor, we address a large historiographical and epistemological issue behind the current Great Divergence debate on why Industrial Revolution occurred in England but not in China. Our article showcases how the development of political ideology and academic discipline in the modern era impacts our understanding of historical statistics and realities of the early modern era, a critical issue largely neglected in the current Great Divergence debate.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

163/2013 - Susanto Basu, Luigi Pascali and Fabio SchiantarelliProductivity and the Welfare of Nations

163/2013 - Susanto Basu, Luigi Pascali and Fabio Schiantarelli

We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.

Published: Policy Research Working Papers
DOI: http://dx.doi.org/10.1596/1813-9450-6026
Research Theme: Culture and Development
Affiliation: External Research Associate

162/2013 - Stelios Michalopoulos and Elias PapaioannouThe Long-Run Effects of the Scramble for Africa

162/2013 - Stelios Michalopoulos and Elias Papaioannou

We examine the long-run consequences of the scramble for Africa among European powers in the late 19th century and uncover the following empirical regularities. First, utilizing information on the spatial distribution of African ethnicities before colonization, we show that apart from the land mass and water area of an ethnicity’s historical homeland, no other geographic, economic, and historical trait, including proxies of pre-colonial conflict, predicts partitioning by the national borders. Second, we exploit a detailed geo-referenced database that records various types of conflict across African regions and show that civil conflict is concentrated in the historical homeland of partitioned ethnicities. We also document that violence against civilians (child soldiering, village burning, abductions, rapes) and territorial changes between rebel groups, militias, and government forces are more prevalent in the homelands of split groups. These results are robust to a rich set of local controls, the inclusion of country fixed effects and ethnic-family fixed effects. The uncovered evidence brings in the foreground the violent repercussions of an important aspect of European colonization, that of ethnic partitioning.

Published: American Economic Review
DOI: http://dx.doi.org/10.1257/aer.20131311
Research Theme: Economic History
Affiliation: External Research Associate

161/2013 - Fernanda Brollo and Ugo TroianoWhat Happens When a Woman Wins an Election? Evidence from Close Races in Brazil

161/2013 - Fernanda Brollo and Ugo Troiano

This paper analyzes the effect of the gender of local policymakers on policy outcomes. Analyzing a rich dataset from Brazilian municipalities and using a regression discontinuity design, we find that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Additionally, male mayors hire more temporary public employees than their female counter-parts when they are allowed to run for re-election, and when municipal elections are approaching. These findings suggest that male mayors may promote more political patronage than female mayors and that men and women may respond differently to local election incentives.

Published: Journal of Development Economics
DOI: http://dx.doi.org/10.1016/j.jdeveco.2016.04.003
Research Theme: Culture and Development
Affiliation: External Research Associate

160/2013 - Stephen BroadberryAccounting for the Great Divergence

160/2013 - Stephen Broadberry

This paper “accounts” for the Great Divergence between Europe and Asia in two ways. In the sense of measurement: (1) the traditional view, in which the Great Divergence had late medieval origins and was already well under way during the early modern period, is confirmed (2) However, revisionists are correct to point to regional variation within both continents (3) There was a Little Divergence within Europe, with a reversal of fortunes between the North Sea Area and Mediterranean Europe. (4) There was a Little Divergence within Asia, with Japan overtaking China and India. However, Japan started at a lower level of per capita income than the North Sea Area and grew at a slower rate, so continued to fall behind until after the Meiji Restoration of 1868. Any explanation needs to be able to account for the Little Divergences within Europe and Asia as well as the Great Divergence between the two continents. The divergences arose from the differential impact of shocks hitting economies with different structural features. The structural factors include: (1) The large share of pastoral farming in agriculture which helped to put the North Sea Area on the path to high-value-added, capital-intensive, non-human-energy intensive production. (2) Late marriage in the North Sea Area, which lowered fertility and encouraged human capital formation (3) Labour supply, with an industrious revolution helping to explain the Little Divergences within both Asia and Europe (4) Institutions, with the role of the state helping to explain the success of the North Sea Area. The two key shocks were (1) The Black Death, which led to a permanent per capita income gain in the North Sea Area, but not in the rest of Eurasia (2) The new trade routes which opened up from Europe to Asia and the Americas around 1500.

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DOI:
Research Theme: Economic History
Affiliation: CAGE

159/2013 - Marcus Miller and Lei ZhangFiscal consolidation: Dr Pangloss meets Mr Keynes

159/2013 - Marcus Miller and Lei Zhang

1A simple dynamic framework is used to show how consolidation plans that are robust and effective at capacity output can be undermined by demand failure. If the market panics and interest rates rise, the process can indeed become dynamically unstable. Tightening fiscal policy to reassure financial markets can lead to a low level “consolidation trap”, however. Better that the Central Bank acts to keep interest rates low; and that fiscal consolidation efforts be state contingent – allowing room for economic stabilisation. The pro-cyclicality of fiscal policy could also be reduced if, as Shiller has argued, debt amortization were state contingent, being indexed to GDP.

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Research Theme: Culture and Development
Affiliation: CAGE

158/2013 - Mehmet Gurdal , Joshua B. Miller and Aldo RustichiniWhy Blame?

158/2013 - Mehmet Gurdal , Joshua B. Miller and Aldo Rustichini

We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.

Published: Journal of Political Economy
DOI: http://dx.doi.org/10.1086/674409
Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

157/2013 - Luigi Grossi and Michael WatersonGerman Energy Market Fallout from the Japanese Earthquake

157/2013 - Luigi Grossi and Michael Waterson

The German response to the Fukushima nuclear power plant incident was possibly the most significant change of policy towards nuclear power outside Japan, leading to a sudden and very significant shift in the underlying power generation structure in Germany. This provides a very useful natural experiment on the impact of changing proportions of conventional fuel inputs to power production, helping us to see how changed proportions in future as a result of policy moves in favour of renewables are likely to impact. We find through exploration of a conventional demand- supply framework that despite the swift, significant change, the main impact was a relatively modest increase in prices occasioned by a shift of the supply curve; there were no appreciable quantity effects on the market, such as power outages, despite some views that the impacts would be significant.

Published: 2013 10th International Conference on the European Energy Market (EEM) Energy Economics
DOI: http://dx.doi.org/10.1109/EEM.2013.6607385 or https://doi.org/10.1016/j.eneco.2017.07.010
Research Theme: Culture and Development
Affiliation: CAGE

156/2013 - Sanjay Jain, Sumon Majumdar and Sharun MukandWalk the Line: Conflict, State Capacity and the Political Dynamics of Reform

156/2013 - Sanjay Jain, Sumon Majumdar and Sharun Mukand

This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform’s initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity, to make compensatory transfers to those adversely a.ected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it.

Published: Journal of Development Economics
DOI: http://dx.doi.org/10.1016/j.jdeveco.2014.02.004
Research Theme: Culture and Development
Affiliation: CAGE

155/2013 - Alberto Alesina, Stelios Michalopoulos and Elias PapaioannouEthnic Inequality

155/2013 - Alberto Alesina, Stelios Michalopoulos and Elias Papaioannou

This study explores the consequences and origins of between-ethnicity economic inequality both across and within countries. First, combining satellite images of nighttime luminosity with the historical homelands of ethnolinguistic groups we construct measures of ethnic inequality for a large sample of countries and show that the latter is strongly inversely related to comparative development. Second, differences in geographic endowments across ethnic homelands explain a sizable portion of ethnic inequality contributing to its persistence over time. Third, exploiting across-district within-African countries variation using individual-level data on ethnic identification and well-being from the Afrobarometer Surveys we find that between ethnic-group inequality is systematically linked to regional under-development. In this sample we also explore the channels linking ethnic inequality to (under) development, finding that ethnic inequality maps to political inequality, heightened perceptions of discrimination and undersupply of public goods.

Published: Journal of Political Economy
DOI: http://dx.doi.org/10.1086/685300
Research Theme: Culture and Development
Affiliation: External Research Associate

154/2013 - Stelios Michalopoulos and Elias PapaioannouNational Institutions and Subnational Development in Africa

154/2013 - Stelios Michalopoulos and Elias Papaioannou

We investigate the role of national institutions on subnational African development in a novel framework that accounts both for local geography and cultural-genetic traits. We exploit the fact that the political boundaries in the eve of African independence partitioned more than two hundred ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to different formal institutions. Using both a matching-type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity differences in economic performance, as captured by satellite images of light density. The average non-effect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.

Published: The Quarterly Journal of Economics
DOI: http://doi.org/10.1093/qje/qjt029
Research Theme: Culture and Development
Affiliation: External Research Associate

153/2013 - Nicholas Crafts and Kevin Hjortshøj O’RourkeTwentieth Century Growth

153/2013 - Nicholas Crafts and Kevin Hjortshøj O’Rourke

This paper surveys the experience of economic growth in the 20th century with a focus on technological change at the frontier together with issues related to success and failure in catch-up growth. A detailed account of growth performance based on historical national accounts data is given and is accompanied by a review of growth accounting evidence on the sources of economic growth. The key features of our analysis of divergence in growth outcomes are an emphasis on the importance of ‘directed’ technical change, of institutional quality, and of geography. We provide brief case studies of the experience of individual countries to illustrate these points.

Published: Handbook of Economic Growth
DOI: https://doi.org/10.1016/B978-0-444-53538-2.00006-X
Research Theme: Economic History
Affiliation: CAGE

152/2013 - Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari RoyBelieving in Oneself: Can Psychological Training Overcome the Effects of Social Exclusion?

152/2013 - Sayantan Ghosal, Smarajit Jana, Anandi Mani, Sandip Mitra and Sanchari Roy

This paper examines whether psychological empowerment can mitigate mental constraints that impede efforts to overcome the effects of social exclusion. Using a randomized control trial, we study a training program specifically designed to reduce stigma and build selfefficacy among poor and marginalized sex workers in Kolkata, India. We find positive and significant impacts of the training on self-reported measures of efficacy, happiness and selfesteem in the treatment group, both relative to the control group as well as baseline measures. We also find higher effort towards improving future outcomes as measured by the participants’ savings choices and health-seeking behaviour, relative to the control group. These findings highlight the need to account for psychological factors in the design of antipoverty programmes.

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Research Theme: Culture and Development
Affiliation: CAGE

151/2013 - Mark HarrisonThe Economics of Coercion and Conflict: an Introduction

151/2013 - Mark Harrison

This chapter introduces the author’s selected papers on the economics of coercion and conflict. It defines coercion and conflict and relates them. In conflict, adversaries make costly investments in the means of coercion. The application of coercion does not remove choice but limits it to options that leave the victim worse off than before. Coercion and conflict are always political, but a number of key concepts from economics can help us understand them. These include rational choice, strategic interaction, increasing and diminishing returns, scale and state capacity, surplus extraction, and Type I errors. The chapter concludes that the economist’s toolkit, although not complete, is useful.

Published: World Scientific
DOI: http://dx.doi.org/10.1142/9081
Research Theme: Economic History
Affiliation: CAGE

150/2013 - Ran Abramitzky and Victor LavyHow Responsive is Investment in Schooling to Changes in Redistributive Policies and in Returns?

150/2013 - Ran Abramitzky and Victor Lavy

This paper uses an unusual pay reform to test the responsiveness of investment in schooling to changes in redistribution schemes that increase the rate of return to education. We exploit an episode where different Israeli kibbutzim shifted from equal sharing to productivity-based wages in different years and find that students in kibbutzim that reformed earlier invested more in high school education. This effect is stronger for males and is largely driven by students whose parents have lower levels of education. We also show that, in the long run, students in kibbutzim that reformed earlier were more likely to complete post-high school academic colleges. Our findings support the prediction that education is highly responsive to changes in the redistribution policy, especially for students from weaker backgrounds.

Published: Econometrica
DOI: http://dx.doi.org/10.3982/ECTA10763
Research Theme: Culture and Development
Affiliation: CAGE

149/2013 - Enrico Spolaore and Romain WacziargLong-Term Barriers to Economic Development

149/2013 - Enrico Spolaore and Romain Wacziarg

What obstacles prevent the most productive technologies from spreading to less developed economies from the world’s technological frontier? In this paper, we seek to shed light on this question by quantifying the geographic and human barriers to the transmission of technologies. We argue that the intergenerational transmission of human traits, particularly culturally transmitted traits, has led to divergence between populations over the course of history. In turn, thisdivergence has introduced barriers to the di¤usion of technologies across societies. We provide measures of historical and genealogical distances between populations, and document how such distances, relative to the world’s technological frontier, act as barriers to the di¤usion of development and of specific innovations. We provide an interpretation of these results in the context of an emerging literature seeking to understand variation in economic development as the result of factors rooted deep in history.

Published: Handbook of Economic Growth
DOI: http://dx.doi.org/10.1016/B978-0-444-53538-2.00003-4
Research Theme: Economic History
Affiliation: External Research Associate

148/2013 - Nicholas Crafts and Nikolaus WolfThe Location of the UK Cotton Textiles Industry in 1838:

148/2013 - Nicholas Crafts and Nikolaus Wolf

We examine the geography of cotton textiles in Britain in 1838 to test claims about why the industry came to be so heavily concentrated in Lancashire. Our analysis considers both first and second nature aspects of geography including the availability of water power, humidity, coal prices, market access and sunk costs. We show that some of these characteristics have substantial explanatory power. Moreover, we exploit the change from water to steam power to show that the persistent effect of first nature characteristics on industry location can be explained by a combination of sunk costs and agglomeration effects.

Published: The Journal of Economic History
DOI: http://doi.org/10.1017/S0022050714000874
Research Theme: Economic History
Affiliation: CAGE

147/2013 - Alexander Klein and Keisuke OtsuyEfficiency, Distortions and Factor Utilization

147/2013 - Alexander Klein and Keisuke Otsuy

In this paper, we analyze the International Great Depression in the US and Western Europe using the business cycle accounting method a la Chari, Kehoe and McGrattan (CKM 2007). We extend the business cycle accounting model by incorporating endogenous factor utilization which turns out to be an important transmission mechanism of the disturbances in the economy. Our main findings are that in the U.S. labor wedges account for roughly half of the drop in output while efficiency and investment wedges each account for a quarter of it during the 1929-1933 period while in Western Europe labor wedges account for more than one-third of the output drop and e¢ ciency, government and investment wedges are responsible for the remaining during the 1929-1932 period. Our findings are consistent with several strands of existing descriptive and empirical literature on the International Great Depression.

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Research Theme: Economic History
Affiliation: External Research Associate

146/2013 - Alexander Klein and Tim LeunigGibrat’s Law and the British Industrial Revolution

146/2013 - Alexander Klein and Tim Leunig

This paper examines Gibrat's law in England and Wales between 1801 and 1911 using a unique data set covering the entire settlement size distribution.We find that Gibrat's law broadly holds even in the face of population doubling every fifty years, an industrial and transportrevolution, and the absence of zoning laws to constrain growth. The result is strongest for the later period, and in counties most affected by the industrial revolution. The exception were villages in areas bypassed by the industrial revolution.We argue that agglomeration externalities balanced urban disamenities such as commuting costs and poor living conditions to ensure steady growth of many places, rather than exceptional growth of few.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

145/2013 - Neil Cummins, Morgan Kelly, and Cormac Ó GrádaLiving Standards and Plague in London

145/2013 - Neil Cummins, Morgan Kelly, and Cormac Ó Gráda

We use individual records of 920,000 burials and 630,000 baptisms to reconstruct the spatial and temporal patterns of birth and death in London from 1560 to 1665, a period dominated by recurrent plague. The plagues of 1563, 1603, 1625, and 1665 appear of roughly equal magnitude, with deaths running at five to six times their usual rate, but the impact on wealthier central parishes falls markedly through time. Tracking the weekly spread of plague before 1665 we find a consistent pattern of elevated mortality spreading from the same northern suburbs. Looking at the seasonal pattern of mortality, we find that the characteristic autumn spike associated with plague continued into the early 1700s. Given that individual cases of plague and typhus are frequently indistinguishable, claims that plague suddenly vanished after 1665 should be treated with caution. Natural increase improved as smaller plagues disappeared after 1590, but fewer than half of those born survived childhood.

Published: The Economic History Review
DOI: https://doi.org/10.1111/ehr.12098
Research Theme: Economic History
Affiliation: External Research Associate

144/2013 - Marcus Miller and Dania ThomasEurozone Sovereign Debt Restructuring: promising legal prospects?

144/2013 - Marcus Miller and Dania Thomas

The Eurozone debt crisis has stimulated lively debate on mechanisms for sovereign debt restructuring. The immediate threat of exit and the breakup of the currency union may have abated; but the problem of dealing with significant debt overhang remains. After considering two broad approaches - institutional versus contractual – we look at a hybrid solution that combines the best of both. In addition to debt contracts with Collective Action Clauses, this includes a key amendment to the Treaty establishing the European Stability Mechanism, together with innovative state-contingent contracts and a Special Purpose Vehicle to market them.

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Research Theme: Culture and Development
Affiliation: CAGE

143/2013 - Eugenio ProtoCooperation and Personality

143/2013 - Eugenio Proto

Cooperating and trusting behavior may be explained by preferences over social outcomes (people care about others, are unselfish and helpful), or attitudes to work and social responsibilities (plans have to be carriedout, norms have to be followed). If the first hypothesis is true, Agreeableness, reporting stated empathy for others, should matter most; if the second, higher score in traits expressing attitude to work, intrinsic motivation (Conscientiousness) should be correlated with cooperating behavior and trust. We find experimental support for the second hypothesis when subjects provide real mental effort in two treatments with identical task, differing by whether others' payment is affected.

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Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

142/2013 - Nicholas CraftsWhat Does the 1930s' Experience Tell Us about the Future of the Eurozone?

142/2013 - Nicholas Crafts

If the Eurozone follows the precedent of the 1930s, it will not survive. The attractions of escaping from the gold standard then were massive and they point to a strategy of devalue and default for today’s crisis countries. A fully-federal Europe with a banking union and a fiscal union is the best solution to this problem but is politically infeasible. However, it may be possible to underpin the Euro by a ‘Bretton-Woods compromise’ that accepts a retreat from some aspects of deep economic integration since exit entails new risks of financial crisis that were not present eighty years ago.

Published: Journal of Common Market Studies
DOI: http://dx.doi.org/10.1111/jcms.12145
Research Theme: Economic History
Affiliation: CAGE

141/2013 - Enrico SpolaoreWhat Is European Integration Really About?

141/2013 - Enrico Spolaore

Europe’s monetary union is part of a broader process of integration that started in the aftermath of World War II. In this “political guide for economists” we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reactions towards an “ever-closer union.” The euro with its current problems is a child of that strategy and its limits.

Published: Journal of Economic Perspectives
DOI: http://dx.doi.org/10.1257/jep.27.3.125
Research Theme: Culture and Development
Affiliation: External Research Associate

140/2013 - Enrico Spolaore and Romain WacziargWar and Relatedness

140/2013 - Enrico Spolaore and Romain Wacziarg

We examine the empirical relationship between the occurrence of inter-state conflicts and the degree of relatedness between countries, measured by genetic distance. We find that populations that are genetically closer are more prone to go to war with each other, even after controlling for numerous measures of geographic distance and other factors that affect conflict, including measures of trade and democracy. These findings are consistent with a framework in which conflict over rival and excludable goods (such as territory and resources) is more likely among populations that share more similar preferences, and inherit such preferences with variation from their ancestors.

Published: The Review of Economics and Statistics
DOI: http://dx.doi.org/10.1162/REST_a_00554
Research Theme: Economic History
Affiliation: External Research Associate

139/2013 - Ola Olsson and Christopher PaikA Western Reversal Since the Neolithic? The Long-Run Impact of Early Agriculture

139/2013 - Ola Olsson and Christopher Paik

While it is widely believed that regions which experienced a transition to Neolithic agriculture early also become institutionally and economically more advanced, many indicators suggest that within the Western agricultural core (including Europe, North Africa, the Middle East, and Southwest Asia), communities that adopted agriculture early in fact have weaker institutions and poorly functioning economies today. In the current paper, we attempt to integrate both of these trends in a coherent historical framework. Our main argument is that countries that made the transition early also tended to develop autocratic societies with social inequality and pervasive rent seeking, whereas later adopters were more likely to have egalitarian societies with stronger private property rights. These di¤erent institutional trajectories implied a gradual shift of dominance from the early civilizations towards regions in the periphery. We document this relative reversal within the Western core by showing a robust negative correlation between years since transition to agriculture and contemporary levels of income and institutional development, on both the national and the regional level. Our results further indicate that the reversal had become manifest already before the era of European colonization.

Published:
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Research Theme: Economic History
Affiliation: External Research Associate

138/2013 - Luigi Guiso, Helios Herrera and Massimo MorelliA Culture Based Theory of Fiscal Union

138/2013 - Luigi Guiso, Helios Herrera and Massimo Morelli

If voters of different countries adhere to different and deeply rooted cultural norms, the country leaders may find it impossible to agree on effcient policies especially in hard times. The conformity constraint -political leaders’ unwillingness or impossibility to depart from these norms - has resulted in lack of timely intervention which has amplfied an initially manageable debt crisis for some European countries to the point of threatening the Euro as a single currency. We show the conditions under which the introduction of a fiscal union can be obtained with consensus and be beneficial. Perhaps counterintuitively, cultural diversity makes a fiscal union even more desirable. Some general lessons can also be drawn on the interaction of cultural evolution and institutional choice.

Published:
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Research Theme: Culture and Development
Affiliation: External Research Associate

137/2013 - Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Dalgaard and Paul SharpPre-Reformation Roots of the Protestant Ethic

137/2013 - Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Dalgaard and Paul Sharp

We hypothesize that cultural appreciation of hard work and thrift, the Protestant ethic according to Max Weber, had a pre-Reformation origin. The proximate source of these values was, according to the proposed theory, the Catholic Order of Cistercians. In support, we first document an impact from the Order on growth within the epicenter of the industrial revolution; English counties that were more exposed to Cistercian monasteries experienced faster productivity growth from the 13th century onwards. Consistent with a cultural influence, this impact is also found after the monasteries were dissolved in the 1530s. Second, we find that the values emphasized by Weber are relatively more pervasive in European regions where Cistercian monasteries were located historically, and that the legacy of the Cistercians can be detected in present-day employment rates across European sub-regions.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12367
Research Theme: Economic History
Affiliation: External Research Associate

136/2013 - Stephen Hansen and Michael McMahonEstimating Bayesian Decision Problems with Heterogeneous Priors

136/2013 - Stephen Hansen and Michael McMahon

In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "PriorBased Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.

Published: CAMA working papers
DOI: http://dx.doi.org/10.2139/ssrn.2295219
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

135/2013 - Marcus Miller and Lei ZhangThe Invisible Hand and the Banking Trade: Seigniorage, Risk-shifting and more

135/2013 - Marcus Miller and Lei Zhang

The classic Diamond-Dybvig model of banking assumes perfect competition and abstracts from issues of moral hazard, hardly appropriate when considering modern UK banking. We therefore modify the classic model to incorporate franchise values due to market power; and risk-taking by banks with limited liability. We go further to show how the capacity of franchise values to mitigate risk taking may be undermined by the bailout option; with explicit analytical results provided for the case of extreme risk-aversion. After a brief discussion of how this may impact on the distribution of income, we outline the ways in which the Vickers Report seeks to remedy these problems.

Published: Brussels Economic Review
DOI: https://econpapers.repec.org/RePEc:bxr:bxrceb:2013/174863
Research Theme: Culture and Development
Affiliation: CAGE

134/2013 - Erlend Berg, Maitressch Ghatak, R. Manjula, D. Rajasekhar, Sanchari RoyMotivating knowledge agents: Can incentive pay overcome social distance?

134/2013 - Erlend Berg, Maitressch Ghatak, R. Manjula, D. Rajasekhar, Sanchari Roy

This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the e ect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised eld experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.

Published: The Economic Journal
DOI: http://dx.doi.org/10.1111/ecoj.12544
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

133/2013 - Kris James Mitchener and Marc D WeidenmierSearching for Irving Fisher

133/2013 - Kris James Mitchener and Marc D Weidenmier

There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of inflation expectations during the gold standard. We derive a measure of silver-gold inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds. Our use of the silver-gold interest rate differential is motivated by the fact that both gold and silver served as numeraires in the pre-WWI period, so that a change in the price of either precious metal would impact the prices of all goods and services. The empirical evidence suggests that silver-gold inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. Further, we find that there is a one-to-one relationship between silver-gold inflation expectations and the interest rate on Austrian perpetuity bonds that were denominated in paper currency. The analysis suggests the operation of a Fisher effect during the classical gold standard period.

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Research Theme: Economic History
Affiliation: External Research Associate

132/2013 - Kris Mitchener and Kirsten WandschneiderCapital controls and Recovery from the financial Crisis of the 1930s

132/2013 - Kris Mitchener and Kirsten Wandschneider

We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-indifferences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series regressions further demonstrate that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy. Even so, capital controls remained in place as instruments for manipulating trade flows and for preserving foreign exchange for the repayment of external debt.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2014.11.011
Research Theme: Economic History
Affiliation: External Research Associate

131/2013 - Sharun Majumdar and Sharun W. MukandInstitution Building and Political Accountability

131/2013 - Sharun Majumdar and Sharun W. Mukand

The paper examines the role of policy intervention in engendering institutional change. We show that first order changes in the political structure (e.g. introduction of democracy) may be undermined by local political interests and result in persistence in institutions and the (poor) quality of governance. The paper identifies two effects of development policy as a tool for institutional change. One, by increasing political accountability, it may encourage nascent democratic governments to invest in good institutions – the incentive effect. However, we show that it also increases the incentive of the rentier elite to tighten their grip on political institutions – the political control effect. Which of these dominate determine the overall impact on institutional quality. Under some conditions, by getting the elite to align their economic interests with that of the majority, development policy can lead to democratic consolidation and economic improvement. However if elite entrenchment is pervasive, then comprehensive change may require more coercive means.

Published: Journal of Public Economic Theory
DOI: https://doi.org/10.1111/jpet.12136
Research Theme: Culture and Development
Affiliation: CAGE

130/2013 - Jennifer C SmithPay Growth, Fairness and Job Satisfaction: Implication for Nominal and Real Wage Rigidity

130/2013 - Jennifer C Smith

Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a first step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult effect except when similar workers have real wage reductions or firm production is falling. Nominal pay cuts appear insulting even when the firm is doing badly

Published: The Scandinavian Journal of Economics
DOI: http://dx.doi.org/10.1111/sjoe.12091
Research Theme: Political Economy
Affiliation: CAGE

129/2013 - Manmohan Agarwal and John WhalleyChina and India: Reforms and the Response: How Differently have the Economies Behaved

129/2013 - Manmohan Agarwal and John Whalley

The relative performance of China and India is compared using two different methods and they provide a very different picture of their relative performance. We compare the average absolute values of indictors for the decade of the 1980s, 1990s and the 2000s. We use indicators such as the current account balance (CAB), exports of goods and services (XGS), foreign direct investment inflow (FDI), gross domestic savings, gross fixed capital formation (GFCF), aid, private capital inflows (PrK) and workers’ remittances, all as a percentage of GDP. We also look at the growth rate of per capita GDP, exports of goods and services and of gross fixed capital formation.Using a two tailed- test we find that China does better than India for most of these indicators. For instance, China has a higher growth rate of per capita income, XGS and GFCF as also a higher share of XGS, GFCF etc in GDP than does India. We also find that China usually has a lower CV, namely a more stable performance. But over the three decades the CV falls in India so it is approaching that in China, namely the two economies are becoming more similar.We also compare the dynamic performance of the two economies since their reforms. We form index numbers for the indicators. So for example, we from an index number for share of exports in GDP with year 1 of reform in China being 100, i.e. the index for the share in 1979 is 100. Year 2 would be the index number for 1980, namely the value of the share in 1980 with the share in 1979 being 100, etc. In the case of India year 1 would be 1992 once the reforms started, year 2 would be 1993 and so on, so the index would have 1992 as the base year. We find that the indices behave very similarly in the two economies for many of the indicators, namely the pattern of change in China after 1979 is the same as in India after 1992.

Published: World Scientific
DOI: http://dx.doi.org/10.1142/9789814578622_0014
Research Theme: Economic History
Affiliation: External Research Associate

128/2013 - Manmohan Agarwal and John WhalleyThe 1991 Reforms, Indian Economic Growth

128/2013 - Manmohan Agarwal and John Whalley

This paper analyzes the effects of the reforms initiated in India following the balance of payments (BOP) crisis of 1991 on economic performance. We do not find persuasive the contention of many analysts that growth accelerated after the mid-1980s when reforms were initiated. Nor does statistical analysis support the contention that reforms in the mid-1980s resulted in a growth acceleration. We show that there is an accelerating rate of growth of GDP after the mid 1970s and it is difficult to relate this gradual acceleration to specific policy changes. The changed policies in the 1980s did not mean a basic change in the policy framework. Furthermore, since corporate investment as a share of GDP did not increase in the 1980s it is difficult to identify the mechanism by which the more pro-business policies of the government were translated to higher growth as claimed by Rodrik and Subramaniam (2005).We show that increasing exports of goods, non-factor services, and labour services, through remittances, played an important role in growth in India. Furthermore, the share of exports of goods and services grew as rapidly in India as in China, so that it cannot be said that growth in India was based more on domestic demand. The increased value of exports of manufactures was important as their value grew from about 16 percent of the manufacturing sector’s value added in the early 1980s to about 60 percent currently. Also, there is no significant difference between the growth rates of value-added in the manufacturing and services sectors except for the period of the Ninth Plan (1997-2001).We find that most of 12 economic indicators show improved performance in the decade 2001-10 compared to the earlier decade 1981-1990. The better performance consisted both in the level and lower variability. Furthermore, we find that the reforms had a gradual effect; the change in the period 1992-2000 was smaller and statistically less significant.We also find that the differences with East Asia and particularly China depend on the basis of the comparison. We compare changes in performance since the reforms, which started in China in 1979 and in India in 1991. Such a comparison shows more similarities than differences. We finally examine social progress. We find that South Asia lags behind other regions in making progress towards the Millennium Development Goals (MDGs) and India lags behind other South Asian countries. The responsiveness of the improvement in the MDGs to increases in per capita income is usually low in Asia and particularly in India.

Published: World Scientific
DOI: https://doi.org/10.1142/9789814578622_0012
Research Theme: Economic History
Affiliation: External Research Associate

127/2013 - Stephen Hansen and Michael McMahonEstimating Bayesian Decision Problems with Heterogenous Priors

127/2013 - Stephen Hansen and Michael McMahon

In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "Prior-Based Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.

Published: Journal of Applied Econometrics
DOI: https://doi.org/10.1002/jae.2446
Research Theme: Culture and Development
Affiliation: CAGE

126/2013 - Emanuele Bracco, Francesco Porcelli and Michela RedoanoPolitical Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy

126/2013 - Emanuele Bracco, Francesco Porcelli and Michela Redoano

This paper argues that high political competition does not necessarily induce policy makers to perform better as previous research has shown. We develop a political economy model and we show that when political competition is tight, and elected politicians can rely on more tax instruments, they will substitute salient taxes with less salient ones, which are not necessarily preferable. These predictions are largely confirmed using a dataset on Italian municipal elections and taxes.

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DOI:
Research Theme: Culture and Development
Affiliation: CAGE

125/2013 - Quamrul Ashraf and Oded GalorGenetic Diversity and the Origins of Cultural Fragmentation

125/2013 - Quamrul Ashraf and Oded Galor

Despite the importance attributed to the e¤ects of diversity on the stability and prosperity of nations, the origins of the uneven distribution of ethnic and cultural fragmentation across countries have been underexplored. Building on the role of deeply-rooted biogeographical forces in compar-ative development, this research empirically demonstrates that genetic diversity, predominantly determined during the prehistoric “out of Africa” migration of humans, is an underlying cause of various existing manifestations of ethnolinguistic heterogeneity. Further exploration of this uncharted territory may revolutionize the understanding of the e¤ects of deeply-rooted factors on economic development and the composition of human capital across the globe.

Published: American Economic Review
DOI: http://dx.doi.org/10.1257/aer.103.3.528
Research Theme: Culture and Development
Affiliation: External Research Associate

124/2013 - Lei Zhang, Lin Zhang and Yong ZhengWholesale Funding, Coordination, and Credit Risk

124/2013 - Lei Zhang, Lin Zhang and Yong Zheng

We use the global games approach to study key factors affecting the credit risk associated with roll-over of bank debt. When creditors are heterogenous, these include the extent of short-term borrowing and capital market liquidity for repo financing. Specifically, in a model with a large institutional creditor and a continuum of small creditors independently making their roll-over decisions based on private information, we find that increasing the proportion of short-term debt and/or decreasing market liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium. The presence of a large creditor does not always reduce credit risk, however, unless it is better informed.

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Research Theme: Culture and Development
Affiliation: CAGE

123/2013 - Jonathan de Quidt, Thiemo Fetzer, and Maitreesh GhatakMarket Structure and Borrower Welfare in Micro Finance

123/2013 - Jonathan de Quidt, Thiemo Fetzer, and Maitreesh Ghatak

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Published: The Economic Journal
DOI: https://doi.org/10.1111/ecoj.12591
Research Theme: Culture and Development
Affiliation: CAGE

122/2013 - Madhav S. Aney, Maitreesh Ghatak, and Massimo MorelliCan Market Failure Cause Political Failure?

122/2013 - Madhav S. Aney, Maitreesh Ghatak, and Massimo Morelli

We study how ineffciencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.

Published:
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Research Theme: Culture and Development
Affiliation: External Research Associate

121/2013 - Maitreesh Ghatak, Sandip Mitra, Dilip Mookherjee and Anusha NathLand Acquisition and Compensation in Singur: What Really Happened?

121/2013 - Maitreesh Ghatak, Sandip Mitra, Dilip Mookherjee and Anusha Nath

This paper reports results of a household survey in Singur, West Bengal concerning compensation offered by the state government to owners of land acquired to make way for a car factory. While on average compensations o.ered were close to the reported market valuations of land, owners of high grade multi-cropped (Sona) lands were undercompensated, which balanced over-compensation of low grade mono-cropped (Sali) lands. This occurred owing to misclassification of most Sona land as Sali land in the official land records. Under-compensation relative to market values significantly raised the chance of compensation offers being rejected by owners. There is considerable evidence of the role of financial considerations in rejection decisions. Land acquisition significantly reduced incomes of owner cultivator and tenant households, despite their efforts to increase incomes from other sources. Agricultural workers were more adversely affected relative to non-agricultural workers, while the average impact on workers as a whole was insignificant. Adverse wealth effects associated with under-compensation significantly lowered household accumulation of consumer durables, while effects on other assets were not perceptible. Most households expressed preferences for non-cash forms of compensation, with diverse preferences across different forms of non-cash compensation depending on occupation and time preferences.

Published: Economic and Political Weekly
DOI: https://www.jstor.org/stable/23527421
Research Theme: Culture and Development
Affiliation: External Research Associate

120/2013 - Maitreesh Ghatak & Alexander KaraivanovContractual Structure in Agriculture with Endogenous Matching

120/2013 - Maitreesh Ghatak & Alexander Karaivanov

We analyze optimal contractual forms and equilibrium matching in a double-sided moral hazard model of sharecropping similar to Eswaran and Kotwal (1985). We show that, with endogenous matching, the presence of moral hazard can reverse the matching pattern relative to the first best, and that even if sharecropping is optimal for an exogenously given pair of agent skills, it may not be observed in equilibrium with endogenous matching. The economy with endogenous matching features less sharecropping compared to an economy with agent skills drawn at random from the same distribution. This suggests that studies of agency costs in sharecropping may underestimate their extent if focusing only on the intensive margin and ignoring the extensive margin.

Published: Journal of Development Economics
DOI: http://dx.doi.org/10.1016/j.jdeveco.2013.05.005
Research Theme: Culture and Development
Affiliation: External Research Associate

119/2013 - Jordi Vidal-RobertWar and Inquisition: Repression in Early Modern Spain

119/2013 - Jordi Vidal-Robert

The Spanish Inquisition (1478-1834) lasted for more than three centuries and conducted more than 100,000 trials. Why would the Spanish Crown adopt this type of repressive institution? What were the actual motives of its activity? This paper explores the role of the Spanish Inquisition as a repressive tool of the Spanish Crown. When the Crown had to move military resources abroad to fight a war, the likelihood of an internal revolt against the Crown increased. To minimize the threat of rebellion, the Crown would use the Inquisition to increase repression (trials) in Spain. In a theoretical framework, I show that while the Inquisition would conduct more trials the higher the intensity of the wars fought abroad, it would however decrease its level of repression (trials) if the likelihood of an internal revolt were large enough. This behavior indicates an inverse-U relationship between inquisitorial and war intensity. To test this prediction, I assemble time series data for seven Spanish inquisitorial districts on annual trials of the Inquisition and wars conducted by the Spanish Crown between 1478 and 1808. I show that there is an inverse-U relationship between wars and inquisitorial activity. My results are robust to the inclusion of data on the severity of the weather (droughts) and to adjustments for spillover e.ects from districts other than the main district under analysis. Moreover, using a new database of 35,000 trials of the Inquisition, I show that religious persecution was especially significant during early stages of the Inquisition, while repressive motives better explain its behavior in later periods.

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DOI:
Research Theme: Economic History
Affiliation: CAGE

118/2013 - Kris James Mitchener and Gary RichardsonDoes "Skin in the Game" Reduce Risk Taking? Leverage, Liability and the Long-Run Consequences of New Deal Financial Reforms

118/2013 - Kris James Mitchener and Gary Richardson

We examine how the Banking Acts of the 1933 and 1935 and related New Deal legislation influenced risk taking in the financial sector of the U.S. economy. Our analysis focuses on contingent liability of bank owners for losses incurred by their firms and how the elimination of this liability influenced leverage and lending by commercial banks. Using a new panel data set that compares balance sheets of state and national banks, we find contingent liability reduced risk taking, particularly when coupled with rules requiring banks to join the Federal Deposit Insurance Corporation. Leverage ratios are higher in states with limited liability for bank owners. Banks in states with contingent liability converted each dollar of capital into fewer loans, and thus could sustain larger loan losses (as a fraction of their portfolio) than banks in limited liability states. The New Deal replaced a regime of contingent liability with stricter balance sheet regulation and increased capital requirements, shifting the onus of risk management from banks to state and federal regulators. By separating investment banks from commercial banks, the Glass-Steagall Act left investment banks to manage their own leverage, a feature of financial regulation that, in part, depended on their partnership structure.

Published: Explorations in Economic History
DOI: http://doi.org/10.1016/j.eeh.2013.06.002
Research Theme: Economic History
Affiliation: External Research Associate

117/2013 - Loren Brandt, Debin Ma, and Thomas G. RawskiFrom Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom

117/2013 - Loren Brandt, Debin Ma, and Thomas G. Rawski

China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644-1911), the world’s largest national economy before 1800, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income. While the timing remains in dispute, a vast gap emerged between newly rich industrial nations and China’s lagging economy in the wake of the Industrial Revolution. Only with an unprecedented growth spurt beginning in the late 1970s did this great divergence separating China from the global leaders substantially diminish, allowing China to regain its former standing among the world’s largest economies. This essay develops an integrated framework for understanding that entire history, including both the divergence and the recent convergent trend. We explain how deeply embedded political and economic institutions that contributed to a long process of extensive growth before 1800 subsequently prevented China from capturing the benefits associated with the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles erected by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent development to important elements of its past, while using recent success to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their eventual removal.

Published: Journal of Economic Literature
DOI: http://dx.doi.org/10.1257/jel.52.1.45
Research Theme: Economic History
Affiliation: External Research Associate

116/2013 - David McKenzie and Christopher WoodruffWhat are we learning from business training and entrepreneurship evaluations

116/2013 - David McKenzie and Christopher Woodruff

Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.

Published: World Bank Research Observer
DOI: https://elibrary.worldbank.org/doi/abs/10.1093/wbro/lkt007
Research Theme: Culture and Development
Affiliation: CAGE

115/2013 - James P.ChoyA Theory of Cooperation through Social Division, with Evidence from Nepal

115/2013 - James P.Choy

Informal, kin-based groups play an important role in developing country economies. I point out two facts:communities are divided into smaller groups, and many groups prohibit interactions with outsiders. These facts are rationalized in a model in which division of the community into non-interacting groups allows agents to support higher levels of cooperation. Group segregation is sustained in equilibrium through a reputatione ect. I test the empirical implication that there should be less cooperation between members of groups that make up a larger percentage of their communities. I discuss implications for underinvestment in education, misallocation of resources, and institutional change.

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Research Theme: Economic History
Affiliation: CAGE

114/2013 - Anastasia LitinaUnfavorable Land Endowment, Cooperation, and Reversal of Fortune

114/2013 - Anastasia Litina

This research advances the hypothesis that reversal of fortunes in the process of economic development can be traced to the effect of natural land productivity on the desirable level of cooperation in the agricultural sector. In early stages of development, unfavorable land endowment enhanced the economic incentive for cooperation in the creation of agricultural infrastructure that could mitigate the adverse effect of the natural environment. Nevertheless, despite the benefcial effects of cooperation on the intensive margin of agriculture, low land productivity countries lagged behind during the agricultural stage of development. However, as cooperation, and its persistent effect on social capital, have become increasingly important in the process of industrialization, the transition from agriculture to industry among unfavorable land endowment economies was expedited, permitting those economies that lagged behind in the agricultural stage of development, to overtake the high land productivity economies in the industrial stage of development. Exploiting exogenous sources of variations in land productivity across countries the research further explores the testable predictions of the theory. It establishes that: (i) reversal of fortunes in the process of development can be traced to variation in natural land productivity across countries. Economies characterized by favorable land endowment dominated the world economy in the agricultural stage of development but were overtaken in the process of industrialization; (ii) lower level of land productivity in the past is associated with higher levels of contemporary social capital; (iii) cooperation, as reflected by agricultural infrastructure, emerged primarily in places were land was not highly productive and collective action could have diminished the adverse effects of the environment and enhance agricultural output.

Published:
DOI:
Research Theme: Economic History
Affiliation: External Research Associate

113/2013 - Matteo Cervellati and Uwe SundeThe Economic and Demographic Transition

113/2013 - Matteo Cervellati and Uwe Sunde

We propose a unified growth theory to investigate the mechanics generating the economic and demographic transition, and the role of mortality differences for comparative development. The framework can replicate the quantitative patterns in historical time series data and in contemporaneous cross-country panel data, including the bi-modal distribution of the endogenous variables across countries. The results suggest that differences in extrinsic mortality might explain a substantial part of the observed differences in the timing of the take-off across countries and the worldwide density distribution of the main variables of interest.

Published: American Economic Journal
DOI: http://dx.doi.org/10.1257/mac.20130170
Research Theme: Economic History
Affiliation: External Research Associate

112/2013 - Nicholas Crafts and Alexander KlienGeography and Intra-National Home Bias: U.S. Domestic Trade in 1949 and 2007

112/2013 - Nicholas Crafts and Alexander Klien

This paper examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years.

Published: Journal of Economic Geography
DOI: http://dx.doi.org/10.1093/jeg/lbu008
Research Theme: Economic History
Affiliation: CAGE

111/2013 - Bishnupriya GuptaDiscrimination or Social Networks? Industrial Investment in Colonial India

111/2013 - Bishnupriya Gupta

Industrial investment in Colonial India was segregated by the export oriented industries, such as tea and jute that relied on British firms and the import substituting cotton textile industry that was dominated by Indian firms. The literature emphasizes discrimination against Indian capital. Instead informational factors played an important role. British entrepreneurs knew the export markets and the Indian entrepreneurs were familiar with the local markets. The divergent flows of entrepreneurship can be explained by the comparative advantage enjoyed by social groups in information and the role of social networks in determining entry and creating separate spheres of industrial investment.

Published: The Journal of Economic History
DOI: http://dx.doi.org/10.1017/S0022050714000059
Research Theme: Economic History
Affiliation: CAGE

110/2013 - Sascha O Becker and Ludger WoessmannNot the Opium of the People: Income and Secularization in a Panel of Prussian Counties

110/2013 - Sascha O Becker and Ludger Woessmann

The interplay between religion and the economy has occupied social scientists for long. We construct a unique panel of income and Protestant church attendance for six waves of up to 175 Prussian counties spanning 1886-1911. The data reveal a marked decline in church attendance coinciding with increasing income. The cross-section also shows a negative association between income and church attendance. But the association disappears in panel analyses, including firstdifferenced models of the 1886-1911 change, panel models with county and time fixed effects, and panel Granger-causality tests. The results cast doubt on causal interpretations of the religion economy nexus in Prussian secularization.

Published: American Economic Review
DOI: http://dx.doi.org/10.1257/aer.103.3.539
Research Theme: Economic History
Affiliation: CAGE

109/2013 - Sascha O. Becker and Hans K. HvideDo entrepreneurs matter?

109/2013 - Sascha O. Becker and Hans K. Hvide

In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, theresults suggest that an often overlooked factor –individual entrepreneurs –plays a large role in affecting firm performance.

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DOI:
Research Theme: Economic History
Affiliation: CAGE

108/2013 - Andrew J. Oswald, Eugenio Proto, and Daniel SgroiHappiness and Productivity

108/2013 - Andrew J. Oswald, Eugenio Proto, and Daniel Sgroi

Some firms say they care about the happiness and ‘well-being’ of their employees. But are such claims hype? Or might they be scientific good sense? This study provides evidence that happiness makes people more productive. First, we examine fundamental real-world shocks (bereavement and family illness) imposed by Nature. We show that lower happiness is associated with lower productivity. Second, within the laboratory, we design two randomized controlled trials. Some individuals are deliberately made happier, while those in a control group are not. The treated individuals have 10-12% greater productivity than those in the control group. These complementary kinds of evidence, with their different strengths and weaknesses, point to a consistent pattern. They suggest that happiness raises human performance.

Published: Journal of Labor Economics
DOI: http://dx.doi.org/10.1086/681096
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

107/2013 - Sayantan Ghosal and Patricio DaltonCharacterizing Behavioral Decisions with Choice Data

107/2013 - Sayantan Ghosal and Patricio Dalton

This paper provides an axiomatic characterization of choices in a setting where a decision-maker may not fully internalize all the consequences of her choices on herself. Such a departure from rationality, it turns out, is common across a variety of positive behavioral models and admits the standard rational choice model as a special case. We show that choice data satisfying (a) Sen’s axioms and fully characterize behavioral decisions, and (b) Sen’s axiom and fully characterize standard decision-making. In addition, we show that (a) it is possible to identify a minimal and a maximal set of psychological states using choice data alone, and (b) under specific choice scenarios, "revealed mistakes" can be inferred directly from choice data.

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Research Theme: Culture and Development
Affiliation: CAGE

106/2012 - Nicholas Crafts and Terence C MillsFiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?

106/2012 - Nicholas Crafts and Terence C Mills

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and time-series econometrics. We find that the government-expenditure multiplier was in the range 0.3 to 0.9 even during the period that interest rates were at the lower bound. The scope for a ‘Keynesian solution’ to recession was much less than is generally supposed. In the later 1930s but not before Britain’s exit from the gold standard, there was a ‘fiscal free lunch’ in that deficit-financed government spending would have improved public finances enough to pay for the interest on the extra debt.

Published: European Review of Economic History
DOI: http://doi.org/10.1093/ereh/heu024
Research Theme: Economic History
Affiliation: CAGE

105/2012 - Kerry HicksonThe Untold Standards of Living Story: The GDP value of Twentieth Century Health Improvements in Developed Economies

105/2012 - Kerry Hickson

Economists are aware that conventional measures of national income do not capture everything that is important to individuals. In particular, the value of huge improvments in health over the twentieth century has gone uncalculated. Usher (1980) and Nordhaus (2002) have emphasised the virtues of including mortality improvments in some form of extended national income measure. This paper therefore sets out a methodology that can be used to calculate the value of mortality and morbidity improvements. The results indicate that health improvements in developed economies have been worth at least $1 trillion. As such not accounting for historical health gains leads to a significant underestimate of improvements in standards of living and economic development.

Published: Review Of Income And Wealth
DOI: https://doi.org/10.1111/j.1475-4991.2012.00524.x
Research Theme: Economic History
Affiliation: External Research Associate

104/2012 - Nicholas CraftsUK Defence News, 1920-1938: Estimates Based on Contemporary Sources

104/2012 - Nicholas Crafts

This paper employs the concept of ‘defence news’ proposed by Ramey (2009) to develop a time series of shocks to UK defence spending in the interwar period at a quarterly frequency. ‘Defence news’ is the present value of changes to defence spending plans. Information on this is taken from contemporary sources, in particular, The Economist. The estimates in this paper can be used as an input to assessing the size of the fiscal multiplier in interwar Britain as in Crafts and Mills (2012).

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

103/2012 - Nicholas Crafts and Terence C MillsRearmament to the Rescue? New Estimates of the Impact of 'Keynesian' Policies in 1930s' Britain

103/2012 - Nicholas Crafts and Terence C Mills

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.5 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was much lower than is generally supposed. We do find that rearmament gave a substantial boost to real GDP after 1935 but this was because the private sector responded to news of massive future defense spending and does not imply that the multiplier effect of temporary public works programs would have been large.

Published: The Journal of Economic History
DOI: http://dx.doi.org/10.1017/S0022050713000880
Research Theme: Economic History
Affiliation: CAGE

102/2012 - Michela RedoanaFiscal Interactions Among European Countries: Does the EU Matter?

102/2012 - Michela Redoana

This paper provides a simple theoretical model of capital tax competition between countries that di¤er in spatial location, and where cross-border investment costs are proportional to distance (a gravity model). We model EU membership as a reduction in ‘distance’ between countries. Precise predictions about reaction functions’ intercepts and slopes are derived. In particular we find that joining the Union lowers tax reaction function’s intercept and that all countries react more to member countries than they do to non-members. These predictions are largely confirmed using a panel data set of statutory corporate tax rates on Western European countries.

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Research Theme: Culture and Development
Affiliation: CAGE

101/2012 - Dennis NovyInternational Trade without CES: Estimating Translog Gravity

101/2012 - Dennis Novy

This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country’s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2012.08.010
Research Theme: Culture and Development
Affiliation: CAGE

100/2012 - Jan-Emmanuel De Neve and Andrew J. OswaldEstimating the influence of life satisfaction and positive affect on later income using sibling fixed-effects

100/2012 - Jan-Emmanuel De Neve and Andrew J. Oswald

The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person’s well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study’s results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.

Published: PNAS
DOI: http://dx.doi.org/10.1073/pnas.1211437109
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

99/2012 - David Hugh Jones and Martin LerochReciprocity towards groups: a laboratory experiment on the causes

99/2012 - David Hugh Jones and Martin Leroch

Field studies of conflict report cycles of mutual revenge between groups, often linked to perceptions of intergroup injustice. We test the hypothesis that people are predisposed to reciprocate against groups. In a computerized laboratory experiment, subjects who were harmed by a partner’s uncooperative action reacted by harming other members of the partner’s group. This group reciprocity was only observed when one group was seen to be unfairly advantaged. Our results support a behavioral mechanism leading from perceived injustice to intergroup conflict. We discuss the relevance of group reciprocity to economic and political phenomena including conflict, discrimination and team competition.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: External Research Associate

98/2012 - Suresh de Mel, David McKenzie, Christopher WoodruffBusiness Training and Female Enterprise Start-up, Growth, and Dynamics: Experimental evidence from Sri Lanka

98/2012 - Suresh de Mel, David McKenzie, Christopher Woodruff

We conduct a randomized experiment among women in urban Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. We work with two representative groups of women: a random sample of women operating subsistence enterprises and a random sample of women who are out of the labor force but interested in starting a business. We track impacts of two treatments – training only and training plus a cash grant – over two years with four follow-up surveys and find that the short- and medium-term impacts differ. For women already in business, training alone leads to some changes in business practices but has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up entry but leads to no increase in net business ownership by our final survey round. Both profitability and business practices of the new entrants are increased by training, suggesting training may be more effective for new owners than for existing businesses. We also find that the two treatments have selection effects, leading to entrants being less analytically skilled and poorer.

Published: Journal of Development Economics
DOI: http://dx.doi.org/10.1016/j.jdeveco.2013.09.005
Research Theme: Culture and Development
Affiliation: CAGE

97/2012 - Sascha O. Becker, Karolina Ekholm and Marc-Andreas MuendlerOffshoring and the Onshore Composition of Tasks and Skills

97/2012 - Sascha O. Becker, Karolina Ekholm and Marc-Andreas Muendler

We analyze the relationship between offshoring and the onshore workforce composition in German multinational enterprises (MNEs), using plant data that allow us to discern tasks, occupations, and workforce skills. Offshoring is associated with a statistically significant shift towards more non-routine and more interactive tasks, and with a shift towards highly educated workers. The shift towards highly educated workers is in excess of what is implied by changes in either the task or the occupational composition. Offshoring to low-income countries—with the exception of Central and Eastern European countries—is associated with stronger onshore responses. We find offshoring to predict between 10 and 15 percent of observed changes in wage-bill shares of highly educated workers and measures of non-routine and interactive tasks.

Published: Journal of International Economics
DOI: http://dx.doi.org/10.1016/j.jinteco.2012.10.005
Research Theme: Economic History
Affiliation: CAGE

96/2012 - Sascha O. Becker, Francesco Cinnirella, Erik Hornung and Ludger WoessmanniPEHD - The ifo Prussian Economic History Database

96/2012 - Sascha O. Becker, Francesco Cinnirella, Erik Hornung and Ludger Woessmann

This paper provides a documentation of the ifo Prussian Economic History Database (iPEHD), a county-level database covering a rich collection of variables for 19th -century Prussia. The Royal Prussian Statistical Office collected these data in several censuses over the years 1816-1901, with much county-level information surviving in archives. These data provide a unique source for microregional empirical research in economic history, enabling analyses of the importance of such factors as education, religion, fertility, and many others for Prussian economic development in the 19th century. The service of iPEHD is to provide the data in a digitized and structured way.

Published: Historical Methods: A Journal of Quantitative and Interdisciplinary History
DOI: http://dx.doi.org/10.1080/01615440.2013.852370
Research Theme: Economic History
Affiliation: CAGE

95/2012 - Victor LavyExpanding School Resources and Increasing Time on Task: Effects of a Policy Experiment in Israel on Student Academic Achievement and Behavior

95/2012 - Victor Lavy

In this paper, I examine how student academic achievements and behavior were affected by a school finance policy experiment undertaken in elementary schools in Israel. Begun in 2004, the funding formula changed from a budget set per class to a budget set per student, with more weight given to students from lower socioeconomic and lower educational backgrounds. The experiment altered teaching budgets, the length of the school week, and the allocation of time devoted to core subjects. The results suggest that spending more money and spending more time at school and on key tasks all lead to increasing academic achievements with no behavioral costs. I find that the overall budget per class has positive and significant effects on students' average test scores and that this effect is symmetric and identical for schools that gained or lost resources due to the funding reform. Separate estimations of the effect of increasing the length of the school week and the subject-specific instructional time per week also show positive and significant effects on math, science, and English test scores. However, no cross effects of additional instructional time across subjects emerge, suggesting that the effect of overall weekly school instruction time on test scores reflects only the effect of additional instructional time in these particular subjects. As a robustness check of the validity of the identification strategy, I also use an alternative method that exploits variation in the instruction time of different subjects. Remarkably, this alternative identification strategy yields almost identical results to the results obtained based on the school funding reform. Additional results suggest that the effect on test scores is similar for boys and girls but it is much larger for pupils from low socioeconomic backgrounds and it is also more pronounced in schools populated with students from homogenous socioeconomic backgrounds. The evidence also shows that a longer school week increases the time that students spend on homework without reducing social and school satisfaction and without increasing school violence.

Published: Journal of the European Economic Association
DOI: https://doi.org/10.1093/jeea/jvy054
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

94/2012 - Eugenio Proto and Aldo RustichiniA Reassessment of the Relationship Between GDP and Life Satisfaction

94/2012 - Eugenio Proto and Aldo Rustichini

Determining the relation between life satisfaction and aggregate income at country level has been problematic, because cross-country and times-series analysis generally give different conclusions. Here we analyze this relation without imposing any polynomial structure to the estimated model and eliminating potentially confounding country-specific factors.We show the existence of a bliss point in the interval between 26,000$ and 30,000$ (2005 in PPP) in relationship between individual life satisfaction and GDP. An almost identical result is found when the relationship between aggregate income of Western European regions and life satisfaction of their residents is analyzed: in this case, data suggest a bliss point between 30,000$ and 33,000$. In both samples, we find first evidence of a decreasing level of life satisfaction after the bliss points. Therefore, the analysis overall shows the existence of a hump-shaped pattern between GDP and life satisfaction.We discuss possible explanations of the hump-shaped pattern linked to external effects of the aggregate income on life satisfaction due, for example, to habit formation and income comparison and present an econometric test of this potential explanation based on some recent findings of the ve-factor personality theory.

Published: PLOS ONE
DOI: http://dx.doi.org/10.1371/journal.pone.0079358
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

93/2012 - Gianluca Grimalday , Anirban Karz and Eugenio ProtoEveryone Wants a Chance: Initial Positions and Fairness in Ultimatum Games

93/2012 - Gianluca Grimalday , Anirban Karz and Eugenio Proto

Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position –arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We find that: (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given offer; consequently, offers increase; (2) Being assigned a mere 1% chance of occupying the proposer role compared to none, significantly increases acceptance rates and decreases offers; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness–both static and dynamic - has clear relevance for individuals.

Published:
DOI:
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

92/2012 - Mark HarrisonCommunism and Economic Modernization

92/2012 - Mark Harrison

The paper examines the range of national experiences of communist rule in terms of the aspiration to ‘overtake and outstrip the advanced countries economically’. It reviews the causal beliefs of the rulers, the rise and fall of their economies (or, in the case of China, its continued rise), the core institutions of communist rule and their evolution, and other outcomes. The process of overcoming a development lag so as to approach the global technological frontier has required continual institutional change and policy reform in the face of resistance from established interests. So far, China is the only country where communist rule has been able to meet this requirement, enabled by a new deal with political and economic stakeholders. The paper places the “China Deal” on a spectrum previously limited to the Soviet Big and Little Deals.

Published:
DOI:
Research Theme: Economic History
Affiliation: CAGE

91/2012 - Nicholas CraftsCreating Competitive Advantage: Policy Lessons from History

91/2012 - Nicholas Crafts

This paper reviews selected aspects of the history of UK supply-side policy in terms of their productivity implications. An important change after the 1970s which improved productivity performance was the adoption of policies to end protectionism and strengthen competition. A review of horizontal industrial policies shows weaknesses in education, infrastructure, taxation and, especially, land-use planning but, on the positive side, a regulatory stance conducive to the rapid adoption of ICT. A big implication is that any return to a more active industrial policy should be designed to minimize adverse effects on competition.

Published: The UK in a Global World
DOI: ISBN: 978-1-907142-55-0
Research Theme: Economic History
Affiliation: CAGE

90/2012 - Amrita Dhillon, Vegard Iversen and Gaute TorsvikEmployee referral, social proximity and worker discipline

90/2012 - Amrita Dhillon, Vegard Iversen and Gaute Torsvik

We study ex-post hiring risks in low income countries with limited legal and regulatory frameworks. In our theory of employee referral, the new recruit internalises the rewards and punishments of the in-house referee meted out by the hiring rm. This social mechanism makes it cheaper for the rm to induce worker discipline. The degree of internalization depends on the unobserved strength of the endogenous social tie between the referee and the recruit.When the referee's utility is increasing in the strength of ties, referee workplace incentives do not matter and referee and employer incentives are aligned: in this case industries and jobs with high costs of opportunism and where dense kinship networks can match the skill requirements of employers will have clusters of close family and friends. This no longer applies if the referee's utility is decreasing in the strength of ties: referrals are then more costly for rms and require higher referee wages. We illustrate how these insights add to our understanding of South-Asian labour markets.

Published: Economic Development and Cultural Change
DOI: https://www.journals.uchicago.edu/doi/abs/10.1086/704512
Research Theme: Culture and Development
Affiliation: External Research Associate

89/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von EhrlichAbsorptive Capacity and the Growth and Investment Effects of Regional Transfers: A Regression Discontinuity Design with Heterogeneous Treatment Effects

89/2012 - Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich

Researchers often estimate average treatment e ects of programs without investigating heterogeneity across units. Yet, individuals, rms, regions, or countries vary in their ability, e.g., to utilize transfers. We analyze Objective 1 Structural Funds transfers of the European Commission to regions of EU member states below a certain income level by way of a regression discontinuity design with systematically heterogeneous treatment effects. Only about 30% and 21% of the regions - those with suffcient human capital and good-enough institutions - are able to turn transfers into faster per-capita income growth and per-capita investment. In general, the variance of the treatment effect is much bigger than its mean.

Published: American Economic Journal
DOI: http://dx.doi.org/10.1257/pol.5.4.29
Research Theme: Economic History
Affiliation: CAGE

88/2012 - Mariela Dal Borgo, Peter Goodridge, Jonathan Haskel and Annarosa PesoleProductivity and Growth in UK Industries: An Intangible Investment Approach

88/2012 - Mariela Dal Borgo, Peter Goodridge, Jonathan Haskel and Annarosa Pesole

This paper tries to calculate some facts for the “knowledge economy”. Building on the work of Corrado, Hulten and Sichel (CHS, 2005,9), using new data sets and a new micro survey, we (1) document UK intangible investment and (2) see how it contributes to economic growth. Regarding investment in knowledge/intangibles, we find (a) this is now greater than tangible investment at, in 2008, £141bn and £104bn respectively; (b) that R&D is about 11% of total intangible investment, software 15%, design 17%, and training and organizational capital 22%; (d) the most intangible-intensive industry is manufacturing (intangible investment is 20% of value added) and (e) treating intangible expenditure as investment raises market sector value added growth in the 1990s due to the ICT investment boom, but slightly reduces it in the 2000s. Regarding the contribution to growth, for 2000-08, (a) intangible capital deepening accounts for 23% of labour productivity growth, against computer hardware (12%) and TFP (40%); (b) adding intangibles to growth accounting lowers TFP growth by about 15% (c) capitalising R&D adds 0.03% to input growth and reduces lnTFP by 0.03% and (d) manufacturing accounts for just over 40% of intangible capital deepening plus TFP.

Published: Oxford Bulletin of Economics and Statistics
DOI: https://doi.org/10.1111/j.1468-0084.2012.00718.x
Research Theme: Economic History
Affiliation: CAGE

87/2012 - Emanuele Bracco, Michela Redoano and Francesco PorcelliIncumbent Effects and Partisan Alignment in Local Elections: a Regression Discontinuity Analysis Using Italian Data

87/2012 - Emanuele Bracco, Michela Redoano and Francesco Porcelli

This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i) aligned municipalities receive more grants, set lower taxes and provide more public goods, (ii) that the probability that the local incumbent is re-elected is higher in aligned municipalities compared to not aligned ones. Our empirical strategy to identify the alignment effects is built upon the fact that being or not aligned changes discontinuously at 50% of the vote share of local parties. This allows us to use sharp regression discontinuity design. Our theoretical predictions are largely confirmed using a new dataset on Italian public finance and electoral data at the central and local level.

Published:
DOI:
Research Theme: Culture and Development
Affiliation: CAGE

86/2012 - Eugenio Proto and Aldo RustichiniLife Satisfaction, Household Income and Personality Traits

86/2012 - Eugenio Proto and Aldo Rustichini

We show that personality traits mediate the e ect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own.To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

Published: Journal of Economic Psychology
DOI: http://doi.org/10.1016/j.joep.2015.02.001
Research Theme: Behavioural Economics and Wellbeing
Affiliation: CAGE

85/2012 - Christina J. Schneider and Vera E. TroegerStrategic Budgeteering and Debt Allocation

85/2012 - Christina J. Schneider and Vera E. Troeger

This paper analyzes how opportunistic governments choose between alternative fiscal policies in order to increases their chances of re-election. To increase the provision of public goods shortly before elections – and thus, to generate a fiscal political business cycles – governments may either increase deficits or redistribute governmental resources from longterm efficient sources to short-term efficient public programs. We argue that incumbents who face highly competed elections principally have an incentive to spend more on public goods even though these investments are not efficient in the long term. In principal, they would do so by increasing the deficits (with re-balancing the budget after the election). However, our model demonstrates that incumbents would even electioneer at the cost of long-term investments if the extent of fiscal transparency does not allow them to finance the provision of public goods with higher deficits. In other words, if elections are close and voters may observe the governmental deficit, then governments tend to increase the provision of public goods – and consequently, their electoral prospects – by a redistribution of budget resources from long-term efficient investment to a short-term provision of public goods. We test the predictions with new data on the composition of government consumption for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed reshuffle resources from long-term efficient investment to short-term public goods before electionsespecially if elections are contested.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

84/2012 - Vera E. TroegerDe Facto Capital Mobility, Equality, and Tax Policy in Open Economies

84/2012 - Vera E. Troeger

This paper attempts at giving theoretical and empirical answers to the remaining puzzles in the literature on tax competition: the persistently high tax rates on mobile capital and the large variation in domestic tax systems. I argue that governments face a political trilemma, in which they cannot maintain the politically optimal level of public good provision, reduce capital taxes to competitive levels and implement a political support-maximizing mix of tax rates on capital and labour simultaneously. In particular, while legal restriction on capital flows have been eliminated by virtually all OECD countries, de facto capital mobility falls short of being perfect. Limits to full capital mobility result from ownership structures: the higher the concentration of capital, the higher the de facto mobility of capital and the lower the equilibrium tax rate. Second, the demand for the provision of public goods further constraints governments’ choices of the capital tax rate. If revenue from taxation of mobile factors declines, politicians cannot necessarily cut back spending without losing political support. Policy makers, accordingly, do not face a simple optimization problem when deciding on capital taxation. Rather, they have to choose a tax system which allows them to supply an appropriate level of public goods. Policy makers finally face a trade-off resulting from the redistributive conflict between capital-owners and workers. This conflict does not resemble a mere zero-sum game, because lower levels of capital taxation are likely to improve aggregate welfare, but the decision on capital taxation also cannot be analyzed in isolation from the distributive effects of reducing taxes on mobile factors. This political logic of tax competition generates important predictions which are tested empirically for 23 OECD countries over 30 years within a spatial econometrics framework.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

83/2012 - Thomas Plümper and Vera E. TroegerTax Competition and Income Inequality: Why did the Welfare State Survive

83/2012 - Thomas Plümper and Vera E. Troeger

Contrary to the belief of many, tax competition did not undermine the foundations of the welfare state and did not even abolish the taxation of capital. Instead, tax competition caused governments to shift the tax burden from capital to labor, thereby increasing income inequality in liberal market economies that traditionally redistribute income by relatively high effective capital taxes and relatively low effective labor taxes. In contrast, income inequality did increase little or not at all in social welfare states that dominantly use social security transfers to redistribute income. Governments in social welfare states found it easy to maintain high social expenditures because they increasingly taxed labor, which is relatively immobile, to finance social security transfers. We test the predictions of this theory using a simultaneous equation approach that accounts for the endogeneity of tax policies, fiscal policies, and deficits.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

82/2012 - Vera E. TroegerMonetary Policy Flexibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares

82/2012 - Vera E. Troeger

This paper argues that the degree of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset an exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the key currency area. The presented empirical evidence largely supports the theoretical predictions.

Published:
DOI:
Research Theme: Political Economy
Affiliation: CAGE

81/2012 - Stephen Broadberry and Bishnupriya GuptaIndia and The Great Divergence: An Anglo-Indian Comparison of GDP per capita, 1600-1871

81/2012 - Stephen Broadberry and Bishnupriya Gupta

This paper provides estimates of Indian GDP constructed from the output side for the pre-1871 period, and combines them with population estimates to track changes in living standards . Indian per capita GDP declined steadily during the seventeenth and eighteenth centuries before stabilising during the nineteenth century. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1600, Indian per capita GDP was over 60 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, the estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.

Published: Explorations in Economic History
DOI: http://dx.doi.org/10.1016/j.eeh.2014.04.003
Research Theme: Economic History
Affiliation: CAGE

80/2012 - Erik HornungRailroads and Micro-regional Growth in Prussia

80/2012 - Erik Hornung

We study the effect of railroad access on urban population growth. Using GIS techniques, we match triennial population data for roughly 1000 cities in nineteenth-century Prussia to georeferenced maps of the German railroad network. We find positive short- and long-term effects of having a station on urban growth for different periods during 1840-1871. Causal effects of (potentially endogenous) railroad access on city growth are identified using instrumental-variable and fixed-effects estimation techniques. Our instrument identifies exogenous variation in railroad access by constructing straight-line corridors between terminal stations. Counterfactual models using pre-railroad growth yield no evidence in support of the hypothesis that railroads appeared as a consequence of a previous growth spurt.

Published: Journal of the European Economic Association
DOI: http://doi.org/10.1111/jeea.12123
Research Theme: Economic History
Affiliation: External research associate

79/2012 - Marcus Miller and Lei ZhangWhither Capitalism? Financial Externalities and Crisis

79/2012 - Marcus Miller and Lei Zhang

As with global warming, so with financial crises – externalities have a lot to answer for. We look at three of them. First the financial accelerator due to 'fire sales' of collateral assets - - a form of pecuniary externality that leads to liquidity being undervalued. Second the 'risk-shifting' behaviour of highly-levered financial institutions who keep the upside of risky investment while passing the downside to others thanks to limited liability. Finally, the network externality where the structure of the financial industry helps propagate shocks around the system unless this is checked by some form of circuit breaker , or 'ring-fence'.The contrast between crisis-induced Great Recession and its aftermath of slow growth in the West and the rapid - and (so far) sustained - growth in the East suggests that successful economic progress may depend on how well these externalities are managed.

Published: International Economic Association Series
DOI: http://doi.org/10.1057/9781137034250_8
Research Theme: Culture and Development
Affiliation: CAGE