Latest Development Economics Papers

Just Rewards?Local Politics and Public ResourceAllocation in South India

Timothy Besley, Rohini Pande, Vijayendra Rao

DEDPS 49. October 2007.
This paper uses data on elected village councils in South India to examine thepolitical economy of public resource allocation. We find that the pattern ofpolicy-making reflects politicians' self-interest. Elected councillors benefit fromimproved personal access to public resources. In addition, the headcouncillor's group identity and residence influences public resource allocation.While electoral incentives do not eliminate politician opportunism, votersappear able to use their electoral clout to gain greater access to publicresources.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps49.pdf

Making Autocracy Work

Timothy Besley, Masayuki Kudamatsu

DEDPS 48. May 2007.
One of the key goals of political economy is to understand how institutional arrangementsshape policy outcomes. This paper studies a comparatively neglected aspect of this - theforces that shape heterogeneous performance of autocracies. The paper develops a simpletheoretical model of accountability in the absence of regularized elections. Leadershipturnover is managed by a selectorate - a group of individuals on whom the leader depends tohold onto power. Good policy is institutionalized when the selectorate removes poorlyperforming leaders from office. This requires that the selectorate’s hold on power is not toodependent on a specific leader being in office. The paper looks empirically at spells ofautocracy to establish cases where it has been successful according to various objectivecriteria. We use these case studies to identify the selectorate in specific instances of successfulautocracy. We also show that, consistent with the theory, leadership turnover in successfulautocracies is higher than in unsuccessful autocracies. Finally, we show by exploitingleadership deaths from natural causes that successful autocracies appear to have found waysfor selectorates to nominate successors without losing power - a feature which is alsoconsistent with the theoretical approach.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps48.pdf

Decentralization's Effects on Educational Outcomes in Bolivia and Colombia

Jean-Paul Faguet, Fabio Sanchez

DEDPS 47. March 2006.
The effects of decentralization on public sector outputs is much debated but little agreed upon. This paper compares the remarkable case of Bolivia with the more complex case of Colombia to explore decentralization’s effects on public education outcomes. In Colombia, decentralization of education finance improved enrollment rates in public schools. In Bolivia, decentralization made government more responsive by re-directing public investment to areas of greatest need. In both countries, investment shifted from infrastructure to primary social services. In both, it was the behavior of smaller, poorer, more rural municipalities that drove these changes.

Full article: http://sticerd.lse.ac.uk/dps/de/DEDPS47.pdf

World Development (Vol. 36, No. 7) July, 2008

Does Envy Destroy Social Fundamentals? The Impact of Relative Income Position on Social Capital

Justina A.V. Fischer, Benno Torgler

DEDPS 46. February 2006.
Research evidence on the impact of relative income position on individual attitudes and behaviour is sorely lacking. Therefore, this paper assesses such positional impact on social capital by applying 14 different measurements to International Social Survey Programme data from 25 countries. We find support for a positional concern effect or ‘envy’ whose magnitude in several cases is quite substantial. The results indicate that such an effect is non-linear. In addition, we find an indication that absolute income level is also relevant. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.

Full article: http://sticerd.lse.ac.uk/dps/de/DEDPS46.pdf

The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India

Philippe Aghion, Robin Burgess, Stephen Redding, F Zilibotti

DEDPS 45. December 2005.
This paper investigates whether the effects, on registered manufacturing out-put,employment, entry and investment, of dismantling the ‘license raj’ - a system of centralcontrols regulating entry and production activity in this sector - vary across Indian stateswith different labor market regulations. The effects are found to be unequal depending onthe institutional environment in which industries are embedded. In particular, followingdelicensing, industries located in states with pro-employer labor market institutions grewmore quickly than those in pro-worker environments. Our results emphasize how localinstitutions matter for whether industry in a region benefits or is harmed by thenationwide delicensing reform.

Full article: http://sticerd.lse.ac.uk/dps/de/DEDPS45.pdf

Political Selection and the Quality ofGovernment: Evidence from South India

Timothy Besley, Rohini Pande, Vijayendra Rao

DEDPS 44. August 2005.
This paper uses household data from India to examine the economic and socialstatus of village politicians, and how individual and village characteristics a®ectpolitician behavior while in o±ce. Education increases the chances of selectionto public o±ce and reduces the odds that a politician uses political poweropportunistically. In contrast, land ownership and political connections enableselection but do not a®ect politician opportunism. At the village level, changesin the identity of the politically dominant group alters the group allocation ofresources but not politician opportunism. Improved information °ows in thevillage, however, reduce opportunism and improve resource allocation.

Full article: http://sticerd.lse.ac.uk/dps/de/DEDPS44.pdf

Why So Much Centralization? A Model of Primitive Centripetal Accumulation

Jean-Paul Faguet

DEDPS 43. June 2004.
With strong conceptual arguments in its favor, decentralization is a popular and growing policy trend across the world. And yet dozens of empirical studies have failed to find convincing evidence that past reforms have worked. This begs two questions: 1)Why does decentralization produce indifferent results? and 2) Why is there so much centralization in the first place? The paper develops a simple model of a legislature in which municipal representatives bargain with central government agents over the allocation of public resources. By locating central government in a particular geographic space ¿ the ¿capital¿ ¿ and invoking self-interest on the part of its residents, I can answer both questions. I introduce the concept of residual power, which underpins the model and determines the flow of resources to districts. There is so much centralization because residual power is located in the capital, whose residents directly benefit from weak local governments.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps43.pdf

Gender Discrimination and Growth: Theory and Evidence from India

Berta Esteve-Volart

DEDPS 42. January 2004.
Gender inequality is an acute and persistent problem, especially in developing countries. This paper argues that gender discrimination is an inefficient practice. We model gender discrimination as the complete exclusion of females from the labor market or as the exclusion of females from managerial positions. The distortions in the allocation of talent between managerial and unskilled positions, and in human capital investment, are analyzed. It is found that both types of discrimination lower economic growth; and that the former also implies a reduction in per capita GDP, while the latter distorts the allocation of talent. Both types of discrimination imply lower female-to-male schooling ratios. We discuss the sustainability of social norms or stigma that can generate discrimination in the form described in this paper. We present evidence based on panel-data regressions across Indian states over 1961-1991 that is consistent with the model¿s predictions.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps42.pdf

Government Corruption and Legislative Procedures: is One Chamber Better Than Two?

Cecilia Testa

DEDPS 41. November 2003.
This paper studies the impact of the competition between lobbies and voters on policy outcomes under alternative legislative procedures. Lobbies and citizens have opposing interests in a public policy and offer money and votes, respectively, to legislators to obtain their preferred policy. Comparing a unicameral and a bicameral legislative procedure, we show that bicameralism improves legislators' accountability when the same party controls the two chambers but not necessarily, if the two chambers are controlled by opposite parties. We also show that bicameralism with amendment rights (open rule) is better than bicameralism without amendment rights (closed rule). Finally, the evidence from a cross-country analysis, including 43 democracies, is consistent with our theoretical findings.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps41.pdf

Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

Robin Burgess, Rohini Pande

DEDPS 40. August 2003.
Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse is true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps40.pdf

Eviction Threats and Investment Incentives

Abhijit Banerjee, Maitreesh Ghatak

DEDPS 39. June 2003.
We show that the effect of eviction threats on unobservable investment effort can be positive. We demonstrate this apparently counter-intuitive result in a model of tenancy where investment by a tenant in the current period raises the chances of doing well in the next period, and therefore retaining the job in the period after next period. If the tenant earns rents, the landlord can partly substitute eviction threats for the crop share as an incentive device. This makes it more attractive for him to elicit investment effort. However, there is a direct negative effect of eviction threats on the tenant's discount factor. We find conditions under which the former effect dominates and eviction threats can increase investment incentives.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps39.pdf

Intrahousehold Efficiency and Individual Insurance in Ghana

Markus Goldstein

DEDPS 38. June 2004.
I test a model of Pareto efficient risk sharing within households usingconsumption data from Ghana. The results reject this model despiteshowing that individual consumption is not significantly affected by bothagricultural and illness shocks. Turning to transfer data, I find evidencethat men share risks with both family members and non-family friendswhen faced with shocks and that women share risk with non-familyfriends. The form of these arrangements differ based not only on thegender of the individual, but also the type of shock and nature of thetransfer.

Full article: http://sticerd.lse.ac.uk/dps/DE/DEDPS38.pdf

Democracy and Education Spending: Has Africa's Move to Multiparty Elections Made a Difference to Policy?

David Stasavage

DEDPS 37. February 2003.
While it is generally recognized that electoral competition can have a major influence on public spending decisions, there has been little effort to consider whether the move to multiparty elections in African countries in recent years has led to a redistribution of public expenditures between social groups. In this paper I develop a hypothesis, illustrated with a simple game-theoretic model, which suggests that the need to obtain an electoral majority may have prompted African governments to devote greater resources to primary schools. I test this proposition using panel data on electoral competition and education spending in thirty-five African countries over the period 1981-1996. The results show that democratization has indeed been associated with greater spending on primary schools, and these findings are robust to controls for unobserved country effects. They are also supported by evidence from recent country cases. Though the reemergence of multiparty democracy in Africa has not led to a wholesale transformation of economic policies, these findings nonetheless suggest that it may be having a significant impact in individual policy areas.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps37.pdf

The Role of Freedom, Growth and Religion in the Taste for Revolution

Robert MacCulloch, Silvia Pezzini

DEDPS 36. September 2002.
A fundamental issue for economists is what determines civil conflict. One unsettled question is the relative importance of political freedoms versus economic development. This paper takes a new approach to provide an answer by using micro-data based on surveys of revolutionary preferences of 130,000 people living in 61 nations between 1980 and 1997. Controlling for personal characteristics, country and year fixed effects, more freedom and economic growth both reduce revolutionary support. Losing one level of freedom, equivalent to a shift from the US to Turkey, increases support for revolt by 4 percentage points. To reduce support by the same amount requires adding 14 percentage points on to the GDP growth rate. Being Muslim in a free country has no effect on the probability of supporting revolt compared to a non-religious person. However, being Muslim in a country that is not free increases it by 13 percentage points. Being Christian in a free country decreases the chance of supporting revolt by 4 percentage points, compared to a non-religious person, and in a not-free country by 1 percentage point.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps36.pdf

Social Networks and Technology Adoption in Northern Mozambique

Oriana Bandiera, Imran Rasul

DEDPS 35. June 2002.
Despite their potentially strong impact on poverty, agricultural innovations are often adopted slowly. Using a unique household dataset on sunflower adoption in Mozambique, we analyse whether and how individual adoption decisions depend upon the choices of others in the same social networks. Since farmers anticipate that they will share information with others, we expect farmers to be more likely to adopt when they know many other adopters. Dynamic considerations, however, suggest that farmers who know many adopters might strategically delay adoption and to free-ride on the information gathered by others. We present empirical evidence which shows that the relationship between the probability of adoption and the number of known adopters is shaped as an inverse-U. In line with information sharing, the network effect is stronger for farmers who report discussing agriculture with others. The data contains information which is needed to ameliorate the identification issues that commonly arise in this context. In particular social networks are precisely identified, and in addition we can control for village heterogeneity and endogenous group information.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps35.pdf

Land Distribution, Incentives and the Choice of Production Techniques in Nicaragua

Oriana Bandiera

DEDPS 34. April 2002.
Does the distribution of land rights affect the choice of contractible techniques? I present evidence suggesting that Nicaraguan farmers are more likely to grow effort-intensive crops on owned rather than on rented plots. I consider two theoretical arguments that illustrate why property rights might matter. In the first the farmer is subject to limited liability; in the second the owner cannot commit to output-contingent contracts. In both cases choices might be inefficient regardless of land distribution. The efficiency loss, however, is lower when the farmer owns the land. Further evidence suggests that, in this context, the inefficiency derives from lack of commitment.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps34.pdf

Can Labour Regulation Hinder Economic Performance? Evidence from India

Timothy Besley, Robin Burgess

DEDPS 33. February 2002.
This paper investigates whether the industrial relations climate in Indian States has affected the pattern of manufacturing growth in the period 1958-92. We show that pro-worker amendments to the Industrial Disputes Act are associated with lowered investment, employment, productivity and output in registered manufacturing. Regulating in a pro-worker direction is also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labour can end up hurting the poor.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps33.pdf

Is a Friend in Need a Friend Indeed? Inclusion and Exclusion in Mutual Insurance Networks in Southern Ghana

Markus Goldstein, Elisabeth Sadoulet, Alain de Janvry

DEDPS 32. February 2002.
Mutual insurance has been shown, theoretically and empirically, to be incomplete and limited by asymmetric information and lack of enforcement mechanisms. While some research has shown that networks based on kinship, neighborhood and ethnicity may provide a locus of insurance and thus a way of overcoming these problems, these studies are not fine enough to predict the inclusion and exclusion of individuals. Using data from rural Ghana, we examine the role of social relations in obtaining assistance in the face of shocks. We examine this at both the intra-household and community levels. At the household level, asking for and receiving assistance from the spouse is related to gender, the quality of the marital relationship, and the wealth of household members. At the community level, asking for and receiving help are correlated with membership in a major lineage, participation in secular organizations, the individual¿s fostering history, and anticipated land inheritance. We also show that these factors differ depending on whether the shortfall was for a household or personal item (as perceived by the respondent). This work helps us to identify individuals who are more likely to fall outside of mutual insurance networks and require interventions to help them cope with risk.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps32.pdf

Does Social Insurance Help Secure Property Rights?

Robert MacCulloch

DEDPS 31. September 2001.
This paper develops a simple model to show how social insurance affects the desire to revolt against property rights. It then tests for the effect of social insurance on revolt by introducing a panel data set derived from surveys across 200,000 randomly sampled individuals from the 1970s to the 1990s. After controlling for the personal characteristics of respondents, country fixed effects, year dummies, as well as country-specific time trends, fewer people are found to support revolt when the generosity of either the elderly person's social security or unemployment benefits increases. A one standard deviation change in either variable explains approximately one standard deviation of the proportion of people supporting revolt, measured across the countries and years in the sample. The personal characteristic with the largest effect on reducing revolutionary support is being religious.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps31.pdf

What Makes a Revolution?

Robert MacCulloch

DEDPS 30. September 2001.
Although property rights are the cornerstone of capitalist economics, throughout history existing claims have been frequently overturned and redefined by revolution. A fundamental question for economists is what makes revolutions more likely to occur. A large literature has found contradictory evidence for the effect of income and income inequality on revolt, possibly owing to omitted variable bias. The primary innovation of the paper is to tackle this problem by introducting a new panel data set derived from surveys of revolutionary support across one-quarter of a million randomly sampled individuals. This allows one to control for unobserved fixed effects. The regressions are based on a choice-theoretic model of revolt. After controlling for personal characteristics, country and year fixed effects, more people are found to favour revolt when inequality is high and their net incomes are low. A policy that decreases inequality equivalent to a shift from the US to Luxemburg is predicted to decrease support for revolt by 7.7 percentage points. A decrease of net income of $US 3,510 (in 1985 constant dollars) increases revolutionary support by the same amount. The results indicate that 'going for growth', or implementing policies that reduce inequality, can buy nations out of revolt.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps30.pdf

Modernisation and Son Preference

Robin Burgess, Juzhong Zhuang

DEDPS 29. December 2000.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps29.pdf

The Political Economy of Government Responsiveness: Theory and Evidence from India

Timothy Besley, Robin Burgess

DEDPS 28. December 2000.
Gaps in welfare attainment between boys and girls in China have attracted international attention. In this paper demand analysis is used to try and uncover the factors which may be driving the emergence of the gender gaps. Drawing on household expenditure data from a poor (Sichuan) and rich (Jiangsu) Chinese province we are able to test for different types of gender bias in intra-household allocation. Spending on health is found to be biased against young girls in the poor but not in the rich province, whereas there is a bias in education spending against older girls in both provinces. These biases in household spending were found to correspond to gender biases in mortality and enrolment outcomes as revealed in census data for the same year. Split sample analysis reveals that poorer, less diversified households exhibit stronger biases against girls. Taken together, the results suggest that son preference in rural China is not driven solely by cultural factors pointing to a potential role for public policy.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps28a.pdf

Commodity Taxation and Social Welfare: The Generalised Ramsey Rule

David Coady, Jean Drèze

DEDPS 27. September 2000.
Commodity taxes have three distinct roles: (1) revenue collection, (2) interpersonal redistribution, and (3) resource allocation. The paper presents an integrated treatment of these three concerns in a second-best general equilibrium framework, which leads to the 'generalised Ramsey rule' for optimum taxation. We show how many standard results on optimum taxation and tax reform have a straightforward counterpart in this general framework. Using this framework, we also try to clarify the notion of 'deadweight loss' as well as the relation between alternative distributional assumptions and the structure of optimum taxes.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps27.pdf

Is Child Work Necessary?

Sonia R Bhalotra

DEDPS 26. August 2000.
This paper investigates why children work by studying the wage elasticity of child labour supply. Incorporating subsistence constraints in to a model of labour supply, we show that a negative wage elasticity favours the hypothesis that poverty compels work whereas a positive wage elasticity would favour the alternative view that children work because the relative returns to school are low. Distinguishing between these alternatives is important for policy. Existing studies have concentrated on the income elasticity, but this tells us nothing other than that leisure (or education) is a normal good. Using a large household survey for rural Pakistan, we estimate structural labour supply models for boys and girls in wage work, conditioning on full income and a range of demographic variables. Our estimates describe a forward falling labour supply curve for boys, consistent with the view that boys work on account of the compulsions of poverty. This is less clear in the case of girls. Therefore raising the return to schooling for girls may draw them out of work, but eliminating boys' wage work requires alleviation of the poverty of their households. Trade sanctions or bans on child labour may have deleterious consequences for these households unless they are compensated for the loss in income.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps26.pdf

Private Investment and Political Uncertainty

David Stasavage

DEDPS 25. July 2000.
Recent theoretical and empirical work has demonstrated a clear negative link between macroeconomic and political uncertainty and levels of private investment across countries. This result raises the question what institutions might help reduce this uncertainty, in particular by allowing host governments to limit their own possibilities to act opportunistically with respect to investors. Some have argued that governments might benefit from joining a multilateral investment agreement, but there remain doubts both about the enforceability and the desirability of such an accord. An alternative possibility, proposed in a seminal article by North and Weingast (1989), is that political institutions characterized by checks and balances can allow governments to credibly commit not to engage in ex post opportunism with respect to investors. In this paper I propose a modified version of this hypothesis and test it using new cross-country data on political institutions. I also use a quantile regression technique which allows the estimated effect of political institutions to vary across countries and over time.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps25.pdf

Child Farm Labour: Theory and Evidence

Sonia R Bhalotra, Chris Heady

DEDPS 24. July 2000.
This paper presents a dynamic model of child labour supply in a farming household. The model clarifies the roles of land, income and household size, allowing labour and credit market imperfections. If labour markets are imperfect, child labour is increasing in farm size and decreasing in household size. The effect of income is shown to depend upon whether the effective choice is between work and school or whether leisure is involved. Credit market constraints tend to dilute the positive impact of farm size and reinforce the negative effect of income. The model is estimated for rural Ghana and Pakistan. A striking finding of the paper is that the effect of farm size at given levels of household income is significantly positive for girls in both countries, but not for boys. This is consistent with the finding, in other contexts, that females exhibit larger substitution effects in labour supply. Increases in household income have a negative impact on work for boys in Pakistan and for girls in Ghana but there is no income effect for the other two groups of children. We find interesting effects of household size and composition, female headship, and mothers' post-secondary education.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps24.pdf

The Rise of Mass Consumption Societies

Kiminori Matsuyama

DEDPS 23. November 2000.
This paper develops a model to understand mechanisms behind the rise of mass consumption societies. The development process depicted in the model follows the Flying Geese pattern, in which a series of industries takes off one after another. As productivity improves in these industries, each consumer good becomes affordable to an increasingly large number of households, which constantly expand the range of goods they consume. This in turn generates larger markets for consumer goods, which leads to further improvement in productivity. In order for such two-way causality to generate virtuous cycles of productivity gains and expanding markets, income distribution should be neither too equal nor too unequal. Some income inequality is needed for the economy to take off; too much equality means that the economy stagnates in a poverty trap. With too much inequality, the economy's development stops prematurely. The rise of a mass consumption society is thus an essential element for sustainable development

Full article: http://sticerd.lse.ac.uk/dps/de/dedps23.pdf

Valutation and Evaluation: Measuring the Quality of Life and Evaluating Policy

Partha Dasgupta

DEDPS 22. June 2000.
This paper is about measuring social well-being and evaluating policy. Part I is concerned with the links between the two, while Parts II and III, respectively, are devoted to the development of appropriate methods of measuring and evaluating. In Part II (Sections 4-7) I identify a minimal set of indices for spanning a general conception of social well-being. The analysis is motivated by the frequent need to make welfare comparisons across time and communities. A distinction is drawn between current well-being and sustainable well-being. Measuring current well-being is the subject of discussion in Sections 5-6. It is argued that a set of five indices, consisting of private consumption per head, life expectancy at birth, literacy, and indices of civil and political liberties, taken together, are a reasonable approximation for the purpose in hand. Indices of the quality of life currently in use, such as UNDP's Human Development Index, are cardinal measures. Since indices of civil and political liberties are only ordinal, aggregate measures of social well-being should be required to be ordinal. In this connection, the Borda index suggests itself. In Section 6 the Borda index is put to work on data on what were 46 of the poorest countries in the early 1980s. Interestingly, of the component indices, the ranking of countries in the sample in terms of life expectancy at birth is found to be the most highly correlated with the countries' Borda ranking. Even more interestingly, the ranking of countries in terms of gross national product (GNP) per head is almost as highly correlated. There can be little doubt that this finding is an empirical happenstance. But it may not be an uncommon happenstance. If this were so, GNP per head could reasonably continue to be used as a summary measure of social well-being, even though it has no theoretical claims to be one. It is widely thought that net national product (NNP) per head measures the economic component of sustainable wel

Full article: http://sticerd.lse.ac.uk/dps/de/dedps22.pdf

Financial Intermediation, Variability and the Development Process

Luis Carranza, Jose E. Galdon-Sanchez

DEDPS 21. March 2000.
In this paper we have built a model of financial intermediation that explains the GDP variability pattern of an economy during the development process. In our model, per capita is more volatile in the middle-income economies than in both low and high-income economies. We show that, if the model economy is in the early or in the mature stages of development there is a unique equilibrium. However, in the middle stages of development multiple equilibria arise. Moreover, we find that in economies with imperfect credit markets, per capita output volatility tends to be higher than in economies with perfect or non-existent credit markets.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps21.pdf

Fertility, Education and Development: Further Evidence from India

Jean Drèze, Mamta Murthi

DEDPS 20. January 2000.
There has been a significant decline in fertility in many parts of India since the early 1980s. This paper reexamines the determinants of fertility levels and fertility decline, using panel data on Indian districts for 1981 and 1991. We find that women's education is the most important factor explaining fertility differences across the country and over time. Low levels of child mortality and son preferences also contribute to lower fertility. By contrast, general indicators of modernization and development such as urbanisation, poverty reduction, and male literacy bear no significant association with fertility. En passant, we probe a subject of much confusion - the relation between fertility decline and gender bias.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps20.pdf

On the Structure of Tenancy contracts: Theory and Evidence fron 19th Century Rural Sicily

Oriana Bandiera

DEDPS 19. January 2000.
This paper analyses the empirical determinants of contract length, a key and yet neglected dimension of contractual structure. I use data on tenancy agreements signed between 1870 and 1880 in the district of Siracusa, Italy to estimate the choice over length and compensation schemes jointly.The findings indicate that the choice of contract length is driven by the need to provide incentives for non-observable investment, taking into account transaction costs and imperfections in the credit markets that make incentive provision costly. The results also illustrate that since both length and the compensation scheme are used to provide incentives within the same contract, joint analysis is important for a correct interpretation of the evidence.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps19.pdf

School Participation in Rural India.

Jean Drèze, Geeta Gandhi Kingdon

DEDPS 18. August 1999.
This paper presents an analysis of the determinant of school participation in rural north India, based on a recent household survey which includes detailed information on school characteristics. School participation especially among girls, responds to a wide range of variables, including parental education and motivation, social background, dependency ratios, work opportunities, village development, teacher posting , teacher regularity and mid-day meals. The remarkable lead achieved by the state of Himachal Pradesh is fully accounted for by these variables. School quality matters, but it is not related in a simply way to specific inputs.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps18.pdf

Public-Private Partnership for the Provision of Public Goods: Theory and an Application to NGOs

Timothy Besley, Maitreesh Ghatak

DEDPS 17. August 1999.
This paper analyzes the role of public and private responsibility in the provision of public goods. We emphasise that a typical public good will require many different inputs which raises the possibility of partnerships to exploit comparative advantages of different parties. But hold-up problems due to contractual incompleteness in specifying tasks discourage separation of ownership and management. We extend our analysis to examine the role of project design or 'ideology' as a separate non-contractible input, and the possibility of crowding out in the form of a less caring government being elected , because of the presence of private providers. The main application developed here is to NGOs in developing countries which, in the last two decades, have been increasingly involved in various capacities in the provisions of a wide range of public goods and services.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps17.pdf

Minority Representation and Policy Choices: The Significance of Legislator Identity.

Rohini Pande

DEDPS 16. June 1999.
Disadvantaged groups tend also to constitute population minorities. One consequence of this is that the policies implemented by electorally accountable governments often fail to reflect minority interests. A policy solution is to enhance the political power of minority groups as a vehicle for promoting their policy interests. This paper analyzes the success of an electoral law, which does so by reserving seats for minority groups in legislatures, in promoting minority interests. The paper develops a theoretical model of the political process to analyze the policy impact of such a law. The key theoretical assumption, that candidates cannot commit to policies, implies that identity is relevant to policy choices. The analysis identifies economic reasons why this may lead parties to never field minority candidates. In such cases the model predicts that an electoral law of political reservation will influence policies. The paper takes advantage of the existence of such a law in India to test this prediction empirically. The principal finding is that minority representation has increased transfers to minorities. This suggests that political representation is central to the design of strategies that aim at promoting minority interests. More generally, the results indicate that legislator identity influences policies, and provide some support for the contention that politicians cannot fully commit to policies.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps16.pdf

The Economics of Non-Governmental Organisations.

R. Hopkins, C.D. Scott

DEDPS 15. May 1999.
The purpose of this paper is to identify the organisational comparative advantage of NGOs, and to develop a model which explains the set of circumstances uder which they emerge and dominate other types of firms. It is argued that the potential superiority of NGOs derives from two features: (1) the creation of an institutional environment within the firm which selectively attracts altruists, who have a lower supply price of effective labour than egotists, and (2) the ability to develop efficient technologies for converting the relevatory and productive effort of their staff into local outputs which are highly valued by the target group of beneficiaries.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps15.pdf

Ethnic Diversity, Mobility and School Funding: Theory and Evidence From Kenya

Ted Miguel

DEDPS 14. June 1999.
This paper explores the relationship between ethnic diversity and local school funding in Kenyan primary schools. The empirical results paint a picture of pervasive local collective action problems in ethnically diverse Kenyan primary schools. Local ethnic diversity is robustly associated with lower local school funding, less parental involvement in school functions, and fewer desks, latrines, and classrooms per pupil in ninety-seven rural Kenyan primary schools. However, local ethnic diversity is not related to average test score performance in these schools. The theory examines the school choice and school funding process when student mobility between schools is limited by land market imperfections, and some aspects of educational quality - such as headmaster competence - differs markedly across schools. The implication for human capital accumulation, economic growth, and local collective action are discussed, especially for Africa.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps14.pdf

Land Reform, Poverty Reduction and Growth: Evidence from India

Timothy Besley, Robin Burgess

DEDPS 13. October 1998.
In recent times there has been a renewed interest in relationships between redistribution, growth and welfare. Land reforms have been central to strategies to improve the asset base of the poor in developing countries though their effectiveness has been hindered by political constraints on implementation. In this paper we use panel data on the sixteen main Indian states from 1958 to 1992 to consider whether the large volume of land reforms as have been legislated have had an appreciable impact on growth and poverty. The evidence presented suggests that land reforms do appear to be associated with poverty reduction.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps13.pdf

Decentralization Schemes, Cost-Benefit-Analysis, and Net National Product as a Measure of Social Well-Being

Partha Dasgupta, Karl-Goran Maler

DEDPS 12. October 1998.
This paper is about net national product (NNP). We are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. We show that NNP, properly defined, can be used as a gauge for project evaluation, but we also show that it should not be used in any of its more customary roles, such as in making intertemporal and cross-country comparisons of social well-being. We develop such indices as would be appropriate for making such comparisons. In particular, we show that comparisons of social well-being should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies. Our analysis includes not only such economies, but also those where the government is capable of engaging only in policy reforms.The literature on green NNP has widely interpreted NNP as a ¿constant-equivalent consumption stream¿. We show that this interpretation offers no purchase. It is the Hamiltonian that equals a constant-equivalent utility stream and we argue that, as the Hamiltonian is typically a non-linear function of consumption and leisure, it is of little practical use.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps12.pdf

Intrahousehold Resource Allocation in Rural Pakistan: A Semi-parametric Analysis

Cliff Attfield, Sonia R Bhalotra

DEDPS 11. February 1998.
We estimate semiparametric Engel curves for rural Pakistan using a large household survey. This allows us to obtain consistent estimates of the effects of household size and composition on consumption patterns even when these demographic variables are correlated with an unknown function of income. The coefficients on the household composition variables are used to infer patterns of intrahousehold allocation. While there is little evidence of gender bias amongst children, adult males appear to get more than adult females. There is a tendency amongst males for workers to get more than dependents. There is no evidence of differential treatment of the elderly and higher birth-order children. We identify substantial economies of size in food consumption. We also find that Engel curces for food, adult goods and child goods are nonlinear, which suggests that the PIGLOG class of demand models in inappropriate.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps11.pdf

Investigating Rationality in Wage-Setting

Sonia R Bhalotra

DEDPS 10. February 1998.
This paper investigates the efficiency wage hypothesis and derives a tractable expression for the profit loss incurred by deviations from the efficiency wage. The extent of the wage deviation can be inferred from production function parameters. The resulting profit loss shown to depend upon the curvature of th effort function and the employment and wage elasticities of output. If the profit loss is small then near rationality may be claimed even if the hypothesis of rationality is statistically rejected. An application to Indian manufacturing is presented, which suggests that rationality cannot be rejected and that the profit function is remarkably flat aroung the optimum. This is consistent with positive effort returns to increasing the wage beyond its efficient level.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps10.pdf

The Economics of Poverty in Poor Countries

Partha Dasgupta

DEDPS 09. January 1998.
This article examines the links that have recently been studied between poverty, high fertility and undernourishment, on the one hand, and degradation of the local environmental-resource base and civic disconnection, on the other, in poor countries. An account is offered of a number of pathways involving positive feed-backs that create poverty traps, into which certain identifiable groups of people in an economy can get caught even when the economy in the aggregate experiences economic growth. The relevant policy implications are noted

Full article: http://sticerd.lse.ac.uk/dps/de/dedps9.pdf

Hunger in the Contemporary World

Amartya Sen

DEDPS 08. November 1997.
Economic analysis of hunger calls for an informationally broad approach that takes adequate account of the distinct interdependences involved. This paper examines the interdependences between (1) income and food consumption, (2) operations of different economic sectors, (3) production and trade in different countries, (4) macroeconomic stability and food security, (5) intrafamily distributional rules and the sharing of food and health care, (6) women's power and fertility behaviour, (7) military expenditure and economic deprivation, (8) early undernourishment and its consequences on health and skills, (9) political incentives and the direction of government policy, and (10) public activism and social commitment. The implications of these interconnections are briefly discussed.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps8.pdf

Inequality, Unemployment and Contemporary Europe

Amartya Sen

DEDPS 07. November 1997.
Inequality of incomes can differ substantially from inequality in other 'spaces' such as well-being, freedom, health, longevity, and quality of life. Given the massive sclae of unemployment in contemporary European economies, concentrating only on income inequality can be particularly deceptive for studying economic inequality, since unemployment causes deprivation in many other ways as well. This paper examines the different ways in which unemployment creates deprivation (other than through low income), and what implications these issues have on the relative merits of American and European attitudes respectively to individual responsibility and social commitment.

Credit in Rural India: A Case Study

Jean Drèze, Peter Lanjouw, Naresh Sharma

DEDPS 06. September 1997.
This paper presents a case study of credit transactions in Palanpur, a north Indian village. Drawing on detailed informtion from all borrowers and lenders in the village, we examine a number of issues related to the functioning of rural credit markets. These include the segmentation of the credit market, the achievements and failure of public lending institutions, the role of interest-free lending, the lending strategies of village moneylenders, social inequalities in access to credit, and the politics of rural credit, among others. An attempt is also made to relate these findings to those of other studies of credit in rural India.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps6.pdf

Population, Consumption and Resources: Ethical Issues

Partha Dasgupta

DEDPS 05. July 1997.
This article is about the concept of optimum population and consumption. Even though it is primarily concerned with foundational issues, the various ideas that have been discussed in the literature are tested in the context of economic models with limited resources. It is argued that, broadley speaking, existing theories of optimum population and consumption are variants of average and, what is often termed classical, utilitarianism, respectively. Both classes of theories, are shown to have deficiencies, in great measure because of their reliance on a defective concept of personhood. It is also argued that contractual theories are of little use, because potential people (as opposed to future people) cannot be parties to any contract. A generation-relative ethics is developed and is put to work in an overlapping generations model. It is shown that generation-relative ethics, even when it is a variant of classical utilitarianism, can prescribe considerably lower population than classical utilitarianism.

The Economics of Food

Partha Dasgupta

DEDPS 04. July 1997.
In this article I argue that, in contrast to what is implicitly assumed in many popular writings on food security in the future, the interface that connects the problems of population growth, poverty, environmental degradation, food insecurity, and civic disconnection should ideally be studied with reference to a myriad of communitarian , household, and individual decisions; or, in other words, that if we are to reach a global, futuristic vision of the human delimma, we need to adopt a local, contemporary lens. I argue that the all-or-nothing position often adopted in current writings is almost certainly misleading; both theory and evidence suggest that, just as today, large bodies of the world's population in 2020 (the point by which world population will have passed 8 billion) will go hungry, even as large numbers continue to enjoy affluence; that women, children, and the old will continue to be the most vulnerable of people; that the stress on ecosystems will be even grater than it is today, and that this may well create further stresses on civic connection. I will also argue that a prime target for national and international economic policy reforms should be the institutions (in particular, the structure of poverty rights) within which individuals, households, firms, and communities go about their business.

What's the Point of a Development Strategy?

Amartya Sen

DEDPS 03. April 1997.
Standard indicators of economic success leave out many aspectsof development that are crucial to the well-being and freedom ofcitizens. We have to examine critically the ends as well as themeans involved in development strategies. The impact of publiceducation, health care, social security, etc. have to be seenboth in terms of their direct effects on human capabilities andtheir indirect consequences on people's lives through raisingproductivity and earning powers, and through helping to reducethe burden, especially on young women, of high fertility. Thetwo aspects have to be considered together.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps3.pdf

Development and Thinking at the Beginning of the 21st Century

Amartya Sen

DEDPS 02. March 1997.
There has been a shift, in recent years, in the understanding of the process of development. It is not a switch (as often portrayed) from a state-dependent view of development to a market-reliant view. Rather, it involves rejecting a "blood, sweat and tears" view of development in favour of celebrating people's agency and cooperation and the expansion of human freedom and capabilities. The market as an institution fits into this bigger picture. So do human rights and democratic values, especially as the vehicle of political incentives (complementing economic incentives). It involves, ultimately, a fuller view of human beings.Contents: 1) Experiences and Lessons; 2) Blood, Sweat and Tears? 3) Hard Build-up and the Role of Accumulation; 4) Hard Business and the Fear of ?Bleeding Hearts?; 5) Hard States and the Denial of Political Rights; 6) Capability Expansion: Human Capital and More; 7) Weights, Values and Public Participation.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps2.pdf

Does the Labour Market Explain Lower Female Schooling in India?

Geeta Gandhi Kingdon

DEDPS 01. January 1997.
Labour market discrimination against women and parental discrimination against daughters are two of the most commonly cited explanations of the gender gap in education in developing countries. This study empirically tests the labour market explanation for India using household survey data collected in urban Uttar Pradesh in 1995. It estimates workforce participation functions and selectivity-corrected earnings fluctuations, and calculates the rates of return to education for the two sexes. Using the Blinder-Oaxaca method, the gross gender difference in earnings is decomposed into the part that is explained by men and women's differential characteristics and the part that is due to labour market discrimination. The results reveal that there is substantial omitted family background bias in the estimates of returns and that, contrary to received wisdom, the rates of returns to education rise by education level. The analysis suggests that, as well as overall labour girls face significantly lower economic rates of returns to education than boys.

Full article: http://sticerd.lse.ac.uk/dps/de/dedps1.pdf