Economic Organisation and Public Policy Discussion Papers

Can Basic Entrepreneurship Transform the Economic Lives of the Poor?

EOPP 43. April 2013.
The world’s poorest people lack capital and skills and toil for others in occupations that others shun. Using a large-scale and long-term randomized control trial in Bangladesh thispaper demonstrates that sizable transfers of assets and skills enable the poorest women to shift out of agricultural labor and into running small businesses. This shift, which persists and strengthens after assistance is withdrawn, leads to a 38% increase in earnings. Inculcatingbasic entrepreneurship, where severely disadvantaged women take on occupations which were the preserve of non-poor women, is shown to be a powerful means of transforming the economic lives of the poor.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp43.pdf

Motivating Knowledge Agents: Can Incentive Pay Overcome Social Distance?

Erlend Berg, Maitreesh Ghatak, R Manjula, D Rajasekhar, Sanchari Roy

EOPP 42. March 2013.
This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the effect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised field experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp42.pdf

Taxation and Development

Timothy Besley, Torsten Persson

EOPP 41. January 2013.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp41.pdf

Market Structure and Borrower Welfare in Microfinance

Thiemo Fetzer, Maitreesh Ghatak, Jonathan de Quidt

EOPP 40. September 2012.
Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures,considering a benevolent non-profit lender, a for-profit monopolist, anda competitive credit market. To understand the magnitude of the effects analyzed,we simulate the model with parameters estimated from the MIX Marketdatabase. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition,for-profit lenders are less likely to use joint liability than non-profits.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp40.pdf

Pre-Colonial Political Centralization and Contemporary Development in Uganda

Sanghamitra Bandyopadhyay, Elliott Green

EOPP 039. August 2012.
The importance of pre-colonial history on contemporary African development has become animportant .eld of study within development economics in recent years. In particular Gennaioliand Rainer (2007) suggest that pre-colonial political centralization has had an impact on con-temporary levels of development within Africa at the country level. We test the Gennaioli andRainer (2007) hypothesis at the sub-national level with evidence from Uganda. Using a varietyof datasets we obtain results which are striking in two ways. First, we con.rm the Gennaioliand Rainer (2007) hypothesis that pre-colonial centralization is highly correlated with modern-day development outcomes such as GDP, asset ownership and poverty levels, and that thesecorrelations hold at the district, sub-county and individual levels. We also use an instrumentalvariable approach to con.rm this .nding using the distance from ancient capital of Mubende asan instrument. However, our second .nding is that public goods like immunization coverage andprimary school enrolment are not correlated with pre-colonial centralization. These .ndings arethus consistent with a correlation between pre-colonial centralization and private rather thanpublic goods, thereby suggesting the persistence of poverty and wealth from the pre-colonialperiod to the present.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp39.pdf

Decentralization of Health and Education in Developing Countries: A Quality-Adjusted Review of the Empirical Literature

Anila Channa, Jean-Paul Faguet

EOPP 038. July 2012.
We review empirical evidence on the ability of decentralization to enhance preference matching and technical efficiency in the provision of health and education in developing countries. Many influential surveys have found that the empirical evidence of decentralization’s effects on service delivery is weak, incomplete and often contradictory. Our own unweighted reading of the literature concurs. But when we organize the evidence first by substantive theme, and then – crucially – by empirical quality and the credibility of its identification strategy, clear patterns emerge. Higher quality evidence indicates that decentralization increases technical efficiency across a variety of public services, from student test scores to infant mortality rates. Decentralization also improves preference matching in education, and can do so in health under certain conditions, although there is less evidence for both. We discuss individual studies in some detail. Weighting by quality is especially important when evidence informs policy-making. Firmer conclusions will require an increased focus on research design, and a deeper examination into the prerequisites and mechanisms of successful reforms.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp38.pdf

The Political Economy of Deforestation in the Tropics

Robin Burgess, Matthew Hansen, Benjamin Olken, Peter Potapov, Stefanie Sieber,

EOPP 037. April 2012.
Tropical deforestation accounts for almost one-…fifth of greenhouse gas emissions worldwide and threatens the world’s most diverse ecosystems. The prevalence of illegal forest extraction in the tropics suggests that understanding the incentives of local bureaucrats and politicians who enforce forest policy may be critical to combating tropical deforestation. We …find support for this thesis using a novel satellite-based dataset that tracks annual changes in forest cover across eight years of institutionalchange in post-Soeharto Indonesia. Increases in the numbers of political jurisdictions are associated with increased deforestation and with lower prices in local wood markets, consistent with a model of Cournot competition between jurisdictions. We also show that illegal logging and rents from unevenly distributed oil and gas revenues are short run substitutes, but this effect disappears over time as political turnover occurs. The results illustrate how incentives faced by local government officials affect deforestation,and provide an example of how standard economic theories can explain illegal behavior.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp37.pdf

The Legacy of Historical ConflictEvidence from Africa

Timothy Besley, Marta Reynal-Querol

EOPP 036. February 2012.
There is a great deal of interest in the causes and consequences of conflict in Africa,one of the poorest areas of the world where only modest economic progress has beenmade. This paper asks whether post-colonial conflict is, at least in part, a legacy ofhistorical conflict by examining the empirical relationship between conflict in Africasince independence with recorded conflicts in the period 1400 to1700. We findevidence of a legacy of historical conflicts using between-country and withincountryevidence. The latter is found by dividing the continent into 120km_120kmgrids and measuring the distance from 91 documented historical conflicts. We alsoprovide evidence that historical conflict is correlated with lower levels of trust, astronger sense of ethnic identity and a weaker sense of national identity.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp36.pdf

No Margin, no Mission? A Field Experimenton Incentives for Pro-Social Tasks

Nava Ashraf, Oriana Bandiera, Kelsey Jack

EOPP 035. January 2012.
A substantial body of research investigates the design of incentives in firms, yet lessis known about incentives in organizations that hire individuals to perform taskswith positive social spillovers. We conduct a field experiment in which agents hiredby a public health organization are randomly allocated to four groups. Agents in thecontrol group receive a standard volunteer contract often offered for this type oftask, whereas agents in the three treatment groups receive small financial rewards,large financial rewards, and non-financial rewards, respectively. The analysis yieldsthree main findings. First, non-financial rewards are more effective at eliciting effortthan either financial rewards or the volunteer contract. The effect of financialrewards, both large and small, is much smaller and not significantly different fromzero. Second, non-financial rewards elicit effort both by leveraging intrinsicmotivation for the cause and by facilitating social comparison among agents. Third,contrary to existing laboratory evidence, financial incentives do not crowd outintrinsic motivation in this setting.<

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp35.pdf

LEFT, RIGHT, LEFT: INCOME DYNAMICSAND THE EVOLVINGPOLITICAL PREFERENCES OFFORWARD-LOOKING BAYESIANVOTERS

Michael Carter, John Morrow

EOPP 034. January 2012.
The political left turn in Latin America, which lagged its transition to liberalizedmarket economies by a decade or more, challenges conventional economicexplanations of voting behavior. While the implications of upward mobility for thepolitical preferences of forward-looking voters have been studied, neither theupward mobility model nor conventional myopic median voter models are wellequipped to explain Latin America’s political transformation. This paper generalizesthe forward-looking voter model to consider a broad range of dynamic processes.When voters have full information on the nature of income dynamics in a transitioneconomy, we show that strong support for redistributive policies will materializerapidly if income dynamics offer few prospects of upward mobility for key sectionsof the electorate. In contrast, when voters have imperfect information, our modelpredicts a slow and politically polarizing shift toward redistributive voterpreferences under these same non-concave income dynamics. Simulation usingfitted income dynamics for two Latin American economies suggests that theimperfect information model better accounts for the observed shift back to the left inLatin America, and that this generalized, forward-looking voter approach may offeradditional insights about political dynamics in other transition economies.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp34.pdf