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2024 Working Papers

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1501 - Market Exposure, Civic Values, and Rules

Devesh Rustagi

Does markets exposure foster or erode civic values and rules necessary to constrain opportunistic behavior? Using a natural experiment on market location from Ethiopia, I compare individuals who are from the same clan and attend the same market but vary in their exposure to that market. I find a positive effect of market exposure on civic values and rule formation. This result arises because individuals trade primarily in livestock, which is prone to cooperation problem from asymmetric information and weak state capacity. I use vignette studies to show that societies develop different types of exchange structures to mitigate this problem, which then shapes civic values and rules. In societies far from markets, there is no need for civic values and rules, as individuals rarely attend markets and sell livestock eponymously within their social network. In societies near markets, ephemeral and impersonal nature of market exchange creates a demand for civic values and community sanctioning as lubricants to conclude exchange, otherwise individuals end up losing gains from trade. Exposure to markets without asymmetric information has no effect on civic values and rules, suggesting that prosperity and contact hypothesis are not the channels.

1500 - Team production on the battlefield: Evidence from NATO in Afghanistan

Thiemo Fetzer Oliver Vanden Eynde Austin L Wright

Managing military operations across and between teams of partner nations remains a first-order challenge to security and development during conflict. NATO, under the umbrella of the International Security Assistance Force (ISAF), brought together troops from 28 countries to help enhance security provision in Afghanistan. ISAF units were given responsibility for specific operational units. The assignment of responsibilities to different national armed forces could lead to coordination problems. We explore whether the provision of security is affected by horizontal frictions (when different countries are responsible for different sides of borders) or vertical frictions (when different countries control different levels of the operational hierarchy). We find that both horizontal frictions and vertical frictions reduce military support activities, including aid projects. They are also associated with higher levels of insurgent violence. These findings indicate that misalignment between units within military organizations can undermine the effectiveness of security and development interventions during war, with broader implications for managing complex teams under risk.

1499 - Estimating Nonlinear Heterogeneous Agent Models with Neural Networks

Hanno Kase, Leonardo Melosi & Matthias Rottner

We leverage recent advancements in machine learning to develop an integrated method to solve globally and estimate models featuring agent heterogeneity, nonlinear constraints, and aggregate uncertainty. Using simulated data, we show that the proposed method accurately estimates the parameters of a nonlinear Heterogeneous Agent New Keynesian (HANK) model with a zero lower bound (ZLB) constraint. We further apply our method to estimate this HANK model using U.S. data. In the estimated model, the interaction between the ZLB constraint and idiosyncratic income risks emerges as a key source of aggregate output volatility.

1498 - Individual bidder behaviour in repeated auctions

Michael Waterson & Olga Wojciechowska

We examine bidders’ behaviour in auction sales of the iPhone4 on eBay in the context of a significant shortage of the product at listed price, leading to achieved prices significantly above the posted price, on average. We examine the behaviour of sellers then test the direct prediction of the successive auctions model that bidders increase their bids over successive auctions and are influenced by the effects of information gained from previous auctions, finding that bidders indeed react both to their direct experience and to experience gained from studying previous auctions. In addition, the results are suggestive of bidders being reluctant to reveal their true valuation of the product initially but that they do so only over time. Our results are novel in being able to track individual bidders’ behaviour rather than simply auction outcomes.

1497 - The virtuous spiral of Smithian growth: colonialism as a contradiction

Marcus Miller

As the world experiences a fourth industrial revolution - in Information Technology - we look back at how things turned out in the first Industrial Revolution, which began when Adam Smith was writing The Wealth of Nations. For the historical record, we draw on the recent study of Power and Progress by Daron Acemoglu and Simon Johnson, who describe how the benefits of innovation were – or were not - spread across society in Britain at that time. This paper focuses on the case of India under colonial rule, however, where two themes emerge. First, how the transfer of technology under the control of a private company – based in London and granted monopoly powers by the British government - was enough to stymie the ‘virtuous spiral of Smithian growth’ for a century or more. Second, how two centuries of colonial control also deprived the indigenous population of what Amartya Sen has claimed is the key insurance against famine - namely democratic accountability. The paper end with brief remarks on how industrial policy in India of today could help spread the benefits of the current IT revolution.

1496 - What is stopping you? The falling employment-to-employment mobility in the UK.

See-Yu Chan

What contributed to the decline in employment-to-employment (EE) transition rate in the UK in recent decades? This paper empirically examines potential channels that caused the sluggish EE mobility from 2000-2019. First, I break down the observed fall in EE mobility relative to unemployed-to-employment (UE) transition into changes in relative search intensity and worker’s acceptance rate. I find the vast majority of the persistent decline after 2010 was due to fall in job acceptance. Second, I estimate a dynamic job ladder model using UK survey data to examine the relative importance of changes in employment and job offer distribution in reducing job acceptance. Results reveal that the falling job acceptance in the 2000s was attributed to workers moving up the job ladder; while acceptance remained low in the 2010s as a result of deterioration in offer qualities. Counterfactual exercise shows that if the attractiveness of poaching offers did not deteriorate after 2010, the EE mobility would have returned to levels in early 2000s. Finally, I test the contribution of composition changes to the fall in EE rate by implementing a between-within decomposition using a structural framework, which accounts for both worker heterogeneity and sectoral compositions. Results rule out demographic changes or structural transformation as main drivers of the fall in EE rates.

1495 - Performative State Capacity and Climate (In) Action

Immanuel Feld & Thiemo Fetzer

Climate action requires significant public- and private sector investment to achieve meaningful reductions in carbon emissions. This paper documents that large-scale austerity, coupled with barriers to flows of data and a lack of (digital) skills in (local) government, may have been a significant barrier to delivering climate action in the form of retrofitting. Decomposing heterogeneity in estimated treatment effects of a large-scale energy efficiency savings program that was rolled out through a regression discontinuity design in the early 2010s, we find that both the extent of austerity-induced local budget cuts and poor digital connectivity – may be responsible for up to 30% fewer retrofit installations that counterfactually would have taken place had it not been for austerity

1494 - Opinion Polls, Turnout and the Demand for Safe Seats

Eleonora Alabrese & Thiemo Fetzer

Do opinion polls sway turnout and shape political competition in majoritarian systems? Can they strengthen the persistence of safe seats? Analysing national opinion polls during UK general elections and the perceived safeness of constituencies, we find that pre-election polls significantly affect voter turnout. Non-competitive elections predicted by national polls suppress turnout, especially in areas with low perceived electoral competition. This reinforces the advantage of trailing parties in their strongholds, potentially fuelling party demand for safe seats that may give rise to demands for gerrymandering. This can exacerbate spatial polarization of the electoral landscape, with implications for governance regarding opinion polling.

1493 - Local Crime and Prosocial Attitudes : Evidence from Charitable Donations

Carlo Perroni, Kimberley Scharf, Sarah Smith, Oleksandr Talavera & Linh Vi

Combining longitudinal postcode-level data on charitable donations made through a UK giving portal with publicly available data on local crime and neighborhood characteristics, we study the relationship between local crime and local residents’ charitable giving and we investigate the possible mechanisms underlying this relationship. An increase in local crime corresponds to a sizeable increase in the overall size of unscheduled charitable donations. This effect is mainly driven by the responses of female and gender unclassified donors. Donation responses also reflect postcode variation in socio-economic characteristics, levels of mental health, and political leanings, but mainly so for female and gender-unidentified donors.

1492 - Red Herrings : A Model of Attention-Hijacking by Politicians

Margot Belguise

Politicians often use red herrings to distract voters from scandals. When do such red herrings succeed? I develop a model in which an incumbent runs for re-election and potentially faces a scandal. Some incumbents enjoy telling “tales” (attention-grabbing stories) while others use tales to distract voters from the scandal. Multiple equilibria can arise: one with a norm of tale-telling in which red herrings succeed and another with a norm against tale-telling in which they fail. Increased media attention to tales has a nonmonotonic effect, facilitating red herrings at low attention levels, but serving a disciplinary function at high levels.

1491 - Conflict and Gender Norms

Mark Dincecco, James Fenske, Bishnupriya Gupta & Anil Menon

We study the relationship between exposure to historical conflict involving heavy weaponry and male-favoring gender norms. We argue that the physical nature of such conflict produced cultural norms favoring males and male offspring. We focus on spatial variation in gender norms across India, a dynamic developing economy in which gender inequality persists. We show robust evidence that areas with high exposure to pre-colonial conflict are significantly more likely to exhibit male favoring gender norms as measured by male-biased sex ratios and crimes against women. We document how conflict-related gender norms have been transmitted over time via male-favoring folkloric traditions, the gender identity of temple gods, and male-biased marriage practices, and have been transmitted across space by migrants originally from areas with high conflict exposure.

1490 - Priming and the gender gap in competitiveness

Lory Barile & Michalis Drouvelis

A substantial body of literature has shown that women shy away from competition against men, which has been put forward as an explanation for the significant gender differences observed in career promotions and salary negotiations. It is therefore of crucial importance to understand the conditions under which the gender gap in competitiveness can be reduced. In this study, we explore the role of priming. Our findings replicate previous work showing that, in the absence of primes, women compete less than men. By contrast, introducing a priming task can eliminate gender disparities in competitiveness, ceteris paribus; however, the effects are stronger when neutral primes are used. We perform sentiment analysis and attribute this to the more negative emotions triggered in the neutral priming condition, making women more competitive. Overall, our results indicate that costless and simple tools such as priming can be adopted by organisations aiming at reducing gender inequalities in the workplace.

1489 - Political Competition and Strategic Voting in Multi-Candidate Elections

Dan Bernhardt, Stefan Krasa & Francesco Squintani

We develop a model of strategic voting in a spatial setting with multiple candidates when voters have both expressive and instrumental concerns. The model endogenizes the strategic coordination of voters, yet is flexible enough to allow the analysis of political platform competition by policy-motivated candidates. We characterize all strategic voting equilibria in a three-candidate setting. Highlighting the utility of our approach, we analyze a setting with two mainstream and a spoiler candidate, showing that the spoiler can gain from entering, even though she has no chance of winning the election and reduces the winning probability of her preferred mainstream candidate

1488 - The Effect of Transitory Health Shocks on Schooling Outcomes : The case of dengue fever in Brazil

Juliana Carneiro, Martin Foureaux Koppensteiner & Lıvia Menezes

In this paper, we estimate the causal effect of transitory individual-level health shocks on schooling outcomes in Brazil. We focus on dengue fever, which, despite putting half of the world’s population at risk, has received relatively little attention, possibly due to its low mortality. We link individual register data on dengue infections with detailed individual records from the Brazilian school census and use a fixed effects estimation strategy to estimate the effect of dengue infections on grade retention and dropout. We find that dengue infections during the school year have a substantial negative effect on measures of student success, with an increase in grade retention of 3.5 percent and an increase in dropout of 4.6 percent. Using information on monthly attendance from the monitoring system of conditionalities of the Brazilian cash transfer Bolsa Famılia, we provide evidence that infections reduce school attendance.

1487 - Informational Boundaries of the State

Thiemo Fetzer, Callum Shaw & Jacob Edenhofer

Formal conceptions of state capacity have mostly focused on indirect measures of state capacity – by, for instance, using the state’s fiscal or extractive capacity as a proxy for its overall capacity. Yet, this input or extractive view of state capacity falls short, especially since cross-country empirical evidence suggests that similar levels of fiscal capacity, measured by tax revenues as a percentage of GDP, can produce starkly different outputs – both in classic economic terms and in broader terms that citizens would recognize as desirable outcomes, including quality of life, health, security, equality of opportunity, and intergenerational mobility. This paper argues that a central step towards addressing these shortcomings of the conventional view is to account for a crucial and largely ignored boundary of the state or dimension of state capacity: its capacity to gather, process, and deploy information in its conduct of fiscal policy. Specifically, we study how the presence or lack of such informational capacity constrains governments in responding to crises, such as the recent energy price shock. Our framework provides the analytical toolkit to examine how the informational boundary of the state shapes the incentives for policymakers to resort to untargeted and/or distortionary policy instruments, as opposed to targeted and non-distortionary ones, in responding to crises. The policy response to the energy crisis following the invasion of Ukraine provides the empirical context upon which we bring this theoretical framework to bear on data, though the latter can be straightforwardly extended to other recent crises.