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1277 - Informality, Consumption Taxes and RedistributionPierre Bachas, Lucie Gadenne & 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.
1276 - Synchronized Elections, Voter Behavior and Governance Outcomes : Evidence from IndiaVimal Balasubramaniam, Apurav Yash 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.
1275 - Designing Information Provision ExperimentsIngar Haaland, Christopher Roth & 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.
1274 - Misinformation during a PandemicLeonardo Bursztyn, Akaash Rao, Christopher Roth & 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
1273 - Religion in Economic History: A SurveySascha O. Becker, Jared Rubin & 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.
1272 - Pre-Colonial Warfare and Long-Run Development in IndiaMark Dincecco, James Fenske, Anil Menon & 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 interstate 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. This result is robust to numerous checks, including controls for geographic endowments, initial state capacity, colonial-era institutions, ethnic and religious fractionalization, and colonial and post-colonial conflict, and an instrumental variables strategy that exploits variation in pre-colonial conflict exposure driven by cost distance to the Khyber Pass. Drawing on rich archival and secondary data, we show that districts that were more exposed to pre-colonial conflict experienced greater local pre-colonial and colonial-era state-making, and less political violence and higher infrastructure investments in the long term. We argue that reductions in local levels of violence and greater investments in physical capital were at least in part a function of more powerful local government institutions.
1271 - The Vanishing Procyclicality of Labour ProductivityJordi GalÌ & 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 effort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics.
1270 - India’s Lockdown: An Interim ReportDebraj Ray and S. Subramanian
Our goal is to provide an interim report on the Indian lock down provoked by the covid19 pandemic. While our main themes — ranging from the philosophy of lock down 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 covid19 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 far reaching relief package to partly compensate those who bear such losses. But for India, adevelopingcountrywithgreatsectoralandoccupationalvulnerabilities,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 lock down meets all international standards so far; the relief package none.
1269 - Evaluating the Sunk Cost EﬀectDavid Ronayne, Daniel Sgroi and Anthony Tuckwell
We provide experimental evidence of behavior 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.
1268 - Slow Real Wage Growth during the Industrial Revolution: Productivity Paradox or Pro-Rich Growth?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.
1267 - Job Search during the COVID-19 CrisisLena 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. Keywords: coronavirus, search intensity, search direction, labour demand shock, job vacancies, online job board
1266 - Global Behaviors and Perceptions at the Onset of the COVID-19 PandemicThiemo Fetzer, Marc Witte, Lukas Hensel, Jon M. Jachimowicz, Johannes Haushofer, Andriy Ivchenko, Stefano Caria, Elena Reutskaja, Christopher Roth, Stefano Fiorin, Margarita Gomez, Gordon Kraft-Todd, Friedrich M. Goetz, Erez Yoeli
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.
1265 - Migration Costs and Observational Returns to Migration in the Developing WorldDavid Lagakos, Samuel Marshall, Ahmed Mushfiq Mobarak, Corey Vernot & Michael E. Waugh
Recent studies find that observational returns to rural-urban migration are near zero in three developing countries. We revisit this result using panel tracking surveys from six countries, finding higher returns on average. We then interpret these returns in a multi-region Roy model with heterogeneity in migration costs. In the model, the observational return to migration confounds the urban premium and the individual benefits of migrants, and is not directly informative about the welfare gain from lowering migration costs. Patterns of regional heterogeneity in returns, and a comparison of experimental to observational returns, are consistent with the model’s predictions.
1264 - Prussia Disaggregated : The Demography of its Universe of Localities in 1871Sascha O. Becker & 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.
1263 - Economic Warfare in Twentieth Century History and strategyMark 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.
1262 - Climate Change and Pandemics : On the Timing of Interventions to Preserve a Global CommonMonica 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.
1261 - Which jobs are done from home? Evidence from the American Time Use Survey?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).
1260 - Capital Gains and UK InequalityArun Advani & 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.
1259 - Attitude towards Immigrants: Evidence from U.S. Congressional SpeechesNeha 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.
1258 - Identification and Inference of Network Formation Games with Misclassified LinksLuis E. Candelaria & Takuya Ura
This paper considers a network formation model when links are potentially measured with error. We focus on a game-theoretical model of strategic network formation with incomplete information, in which the linking decisions depend on agents’ exogenous attributes and endogenous network characteristics. In the presence of link misclassification, we derive moment conditions that characterize the identified set for the preference parameters associated with homophily and network externalities. Based on the moment equality conditions, we provide an inference method that is asymptotically valid when a single network of many agents is observed. Finally, we apply our proposed method to study trust networks in rural villages in southern India.
1257 - The Global Transmission of U.S. Monetary PolicyRiccardo Degasperi, Seokki Simon Hong & Giovanni Ricco
This paper studies the transmission of US monetary shocks across the globe by employing a high-frequency identiﬁcation of policy shocks and large VAR techniques, in conjunction with a large macro-ﬁnancial dataset of global and national indicators covering both advanced and emerging economies. Our identiﬁcation controls for the information eﬀects of monetary policy and allows for the separate analysis of tightenings and loosenings of the policy stance. First, we document that US policy shocks have large real and nominal spillover eﬀects that aﬀect both advanced economies and emerging markets. Policy actions cannot fully isolate national economies, even in the case of advanced economies with ﬂexible exchange rates. Second, we investigate the channels of transmission and ﬁnd that both trade and ﬁnancial channels are activated and that there is an independent role for oil and commodity prices. Third, we show that eﬀects are asymmetric and larger in the case of contractionary US monetary policy shocks. Finally, we contrast the transmission mechanisms of countries with diﬀerent exchange rates, exposure to the dollar, and capital control regimes.
1256 - Gender Attitudes in the Judiciary: Evidence from U.S. Circuit CourtsElliott Ash, Daniel L. Chen and Arianna Ornaghi
Stereotypes are thought to be an important determinant of decision making, but they are hard to systematically measure, especially for individuals in policy-making roles. In this paper, we propose and implement a novel language-based measure of gender stereotypes for the high-stakes context of U.S. Appellate Courts. We construct a judge-speciﬁc measure of gender stereotyped language use – gender slant – by looking at the linguistic association of words identifying gender (male versus female) and words identifying gender stereotypes (career versus family) in the judge’s authored opinions. Exploiting quasi-random assignment of judges to cases and conditioning on detailed biographical characteristics of judges, we study how gender stereotypes inﬂuence judicial behaviour. We ﬁnd that judges with higher slant vote more conservatively on women’s rights’ issues (e.g. reproductive rights, sexual harassment, and gender discrimination). These more slanted judges also inﬂuence workplace outcomes for female colleagues: they are less likely to assign opinions to female judges, they are more likely to reverse lower-court decisions if the lower-court judge is a woman, and they cite fewer female authored opinions.
1255 - The Separation and Reunification of Germany: Rethinking a Natural Experiment Interpretation of the Enduring Effects of CommunismSascha 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.
1254 - Migrants and Firms: Evidence from ChinaClement Imbert, Marlon Seror, Yanos 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.
1253 - Costs and Benefits of Rural-Urban Migration : Evidence from IndiaClément 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.
1252 - How to Improve Tax Compliance? Evidence from Population-wide Experiments in BelgiumJan-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 backﬁres. 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
1251 - Lords and Vassals : Power, Patronage, and the Emergence of InequalityRobert 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.
1250 - Manipulative DisclosureClaudio Mezzetti
This paper studies disclosure of veriﬁable information by a privately informed expert. It shows that if the direction of the expert’s bias is uncertain, then a positive measure of expert types manipulate the decision maker fully, inducing her to choose their ideal outcome. Most other types manipulate partially. The decision maker obtains her ﬁrst best outcome only if the expert is unbiased or the state of the world is a boundary point of the state space and the expert prefers a more extreme outcome. Experts beneﬁt from being poker faced and the decision maker’s lack of familiarity with the problem.
1249 - A Dominant Strategy, Double Clock Auction with Estimation-Based TatonnementSimon Loertscher & Claudio Mezzetti
The price mechanism is fundamental to economics but diﬃcult to reconcile with incentive compatibility and individual rationality. We introduce a double clock auction for a homogeneous good market with multi-dimensional private information and multi-unit traders that is deﬁcit-free, ex post individually rational, constrained eﬃcient, and makes sincere bidding a dominant strategy equilibrium. Under a weak dependence and an identiﬁability condition, our double clock auction is also asymptotically eﬃcient. Asymptotic eﬃciency is achieved by estimating demand and supply using information from the bids of traders that have dropped out and following a tatonnement process that adjusts the clock prices based on the estimates.
1248 - Mediation DesignPiero Gottardi & Claudio Mezzetti
We propose a mechanism design approach to study the role of a mediator in dispute resolution and bargaining. The mediator provides a buyer and a seller with “reality checks” by controlling the information each party has about her own value for a transaction, and proposes a price at which trade can occur if parties agree. We ﬁrst consider the class of static information disclosure and trading mechanisms, in which the mediator simultaneously selects the information disclosed to the parties and posts the price at which they can trade. We characterize the mechanism that maximizes the ex-ante gains from trade. We show it is optimal to restrict agents’ information, as this allows to increase the volume of trade and complete some of the most valuable trades that are lost in the welfare maximizing mechanism under full information. We then study the value of the mediator engaging in “shuttle diplomacy” by considering a class of dynamic information disclosure and trading mechanisms, and show that it is possible to design a dynamic mechanism that achieves ex-post eﬃciency. Shuttle diplomacy facilitates trade by allowing the mediator to condition information releases and prices posted on the history of feedbacks she receives from the parties during her meetings with them.
1247 - Estimation of Discrete Games with Weak Assumptions on InformationLorenzo Magnolﬁ and Camilla Roncoroni
We propose a method to estimate static discrete games with weak assumptions on the information available to players. We do not fully specify the information structure of the game, but allow instead for all information structures consistent with players knowing their own payoﬀs and the distribution of opponents’ payoﬀs. To make this approach tractable we adopt a weaker solution concept: Bayes Correlated Equilibrium (BCE), developed by Bergemann and Morris (2016). We characterize the sharp identiﬁed set under the assumption of BCE and no assumptions on equilibrium selection, and ﬁnd that in simple games with modest variation in observable covariates identiﬁed sets are narrow enough to be informative. In an application, we estimate a model of entry in the Italian supermarket industry and quantify the eﬀect of large malls on local grocery stores. Parameter estimates and counterfactual predictions diﬀer from those obtained under the restrictive assumption of complete information.
1246 - Human Capital and Macro-Economic Development: A Review of the EvidenceFederico Rossi
The role of human capital in facilitating macro-economic development is at the center of both academic and policy debates. Through the lens of a simple aggregate production function, human capital might increase output per capita by directly entering in the production process, incentivising the accumulation of complementary inputs and facilitating the adoption of new technologies. This paper discusses the advantages and limitations of three approaches that have been used to evaluate the empirical importance of these channels: cross-country regressions, development accounting and quantitative models. The key ﬁndings in the literature are reviewed, and some of them are replicated using updated data. The bulk of the evidence suggests that human capital is an important determinant of cross-country income gaps,especially when its measurement is broadened to go beyond simple proxies of educational attainment. The paper concludes by highlighting policy implications and promising avenues for future work.
1245 - Delayed Adjustment and Persistence in Macroeconomic ModelsThijs van Rens & Marija Vukotic
Estimated impulse responses of investment and hiring typically peak well after the impact of a shock. Standard models with adjustment costs in capital and labour do not exhibit such delayed adjustment, but we argue that it arises naturally when we relax the assumption that the production technology is separable over time. This result holds for both non-convex and convex cost functions, and for reasonable parameter values the effect is strong enough to match the persistence observed in the data. We discuss some evidence for our explanation and ways to test the model.
1244 - Reshaping Infrastructure: Evidence from the division of GermanyMarta 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 pre war German economy and estimate the key structural parameter of the model using the pre war 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 pre war Highway Plan. I ﬁnd 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 pre war Plan. Finally, I ﬁnd 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%.
1243 - Identification and Estimation of Group-Level Partial EffectsKenichi Nagasawa
This paper presents identification and estimation results for causal effects of group-level variables when agents select into groups. I specify a triangular system of equations to model outcome determination and group selection, accommodating general non separable models. Using conditional independence and completeness assumptions, I show that the group-level distribution of individual characteristics is a valid control function, conditional on which group-level variables of interest become exogenous. Building on this result, I identify average effects under a common support condition. The key identifying requirements are more plausible in settings where a rich array of individual characteristics are observed. For the identified parameter, I construct a kernel-based estimator and prove its consistency. Although the identification argument uses completeness, the estimation procedure does not involve solving for an ill-posed integral equation.
1242 - Do British wind generators behave strategically in response to the Western Link interconnector?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’ behaviour. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings
1241 - Subsidies and the Dynamics of Selection: Experimental Evidence from Indonesia's National Health InsuranceAbhijit Banerjee, Amy Finkelstein, Rema Hanna, Benjamin Olken & Arianna Ornaghi
To assess ways to achieve widespread health insurance coverage with financial solvency in developing countries, we designed a randomized experiment involving almost 6,000 households in Indonesia who are subject to a nationally mandated government health insurance program. We assessed several interventions that simple theory and prior evidence suggest could increase coverage and reduce adverse selection: substantial temporary price subsidies (which had to be activated within a limited time window and lasted for only a year), assisted registration, and information. Both temporary subsidies and assisted registration increased initial enrolment. Temporary subsidies attracted lower cost enrolees, in part by eliminating the practice observed in the no subsidy group of strategically timing coverage for a few months during health emergencies. As a result, while subsidies were in effect, they increased coverage more than eightfold, at no higher unit cost; even after the subsidies ended, coverage remained twice as high, again at no higher unit cost. However, the most intensive (and effective) intervention – assisted registration and a full one-year subsidy – resulted in only a 30 percent initial enrollment rate, underscoring the challenges to achieving widespread coverage.
1240 - Secession with Natural ResourcesAmrita 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 are 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-break up local outcomes.
1239 - Attribution Bias by Gender: Evidence from a Laboratory ExperimentJames 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.