Knowledge that Transforms

Overloaded electrical systems are a major source of unreliable power. Using a randomized saturation design, we estimate the impact of compact fluorescent lamps (CFLs) on electricity reliability and household electricity consumption in the Kyrgyz Republic. Greater saturation of CFLs within a transformer leads to fewer outages, a technological externality benefiting all households, regardless of individual adoption. Spillovers in CFL adoption further reduce electricity consumption, contributing to increased reliability within a transformer. CFLs' impacts on household electricity consumption vary according to the effects on reliability. Receiving CFLs significantly reduces electricity consumption, but increased reliability permits greater consumption of electricity services.

Evidence on the effectiveness of foreign exchange (FX) interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

The relationship between ethnic heterogeneity and economic growth is complex. Empirical research working with cross-country data finds a negative, or statistically insignificant, relationship. However, analysis at the city level finds a positive effect of diversity on wages and productivity. Generally there is a trade-off between the economic benefits of diversity and the costs of heterogeneity. Using cells of fixed size, we find that the relationship between diversity and growth is positive for small geographical areas. In the case of Africa, we argue that the explanation is the increase in trade at the boundaries between ethnic groups due to ethnic specialization.

In this paper, we analyze the effect of light conditions on road accidents and estimate the long-run consequences of different time regimes for road safety. Identification is based on variation in light conditions induced by differences in sunrise and sunset times across space and time. We estimate that darkness causes annual costs of more than £500 million in Great Britain. By setting daylight saving time year-round, 8% of these costs could be saved. Thus, focusing solely on the short-run costs related to the transition itself underestimates the total costs of the current time regime.

Incentivized experiments are often used to identify the time preferences of households in developing countries. We argue theoretically and empirically that experimental measures may not identify preference parameters, but are a useful tool for understanding financial shocks and constraints. Using data from an experiment in Mali, we find that subject responses vary with savings and financial shocks, meaning they provide information about credit constraints and can be used to test models of risk sharing.

We use firm-level data on U.S. multinationals to show how offshoring affects domestic employment within and across firms. We introduce a new instrument for offshoring, bilateral tax treaties, which reduce the cost of offshore activities. We find substantial heterogeneity in effects. A 10% increase in affiliate employment drives a 1.3% increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. In contrast, offshoring by vertical multinationals drives declining employment among nonmultinationals in the same industry, and firms opening new affiliates exhibit smaller domestic employment growth than those expanding existing affiliates.

I examine the source and welfare implications of differences in household consumption diversity. I document the existence of a positive correlation between household variety and expenditure to motivate a simple framework where households purchase more varieties to counteract diminishing returns to quantity but face location-specific costs of accessing variety. Estimating the model with Indian household data, I find that the increase in dietary diversity between 1983 and 2009 was mostly due to lower costs of accessing variety, which resulted in large welfare gains. Urban households also benefit from a lower cost of accessing varieties than rural households.

A substantial proportion of individuals who complete the widely used multiple price list (MPL) instrument switch back and forth between the safe and the risky choice columns, behavior that is believed to indicate low-quality decision making. We develop a conceptual framework to formally define decision-making quality, test explanations for the nature of low-quality decision making, and introduce a novel “nudge” treatment that reduced multiple switching behavior and increased decision-making quality. We find evidence in support of task-specific miscomprehension of the MPL and that non-multiple switchers and relatively high-cognitive-ability individuals are not immune to low-quality decision making.

Self-control problems constitute a potential explanation for the underinvestment in preventive health in low-income countries. Behavioral economics offers a tool to solve such problems: commitment devices. We conduct a field experiment to evaluate the effectiveness of different types of theoretically motivated commitment contracts in increasing preventive doctor visits by hypertensive patients in rural India. Despite achieving high take-up of such contracts in some treatment arms, we find no effects on actual doctor visits or individual health outcomes. A substantial number of individuals pay for commitment but fail to follow through on the doctor visit, losing money without experiencing health benefits. We develop and structurally estimate a prespecified model of consumer behavior under present bias with varying levels of naiveté. The results are consistent with a large share of individuals being partially naive about their own self-control problems: sophisticated enough to demand some commitment but overly optimistic about whether a given level of commitment is sufficiently strong to be effective. The results suggest that commitment devices may in practice be welfare diminishing, at least in some contexts, and serve as a cautionary tale about their role in health care.

This study considers the experience of china's one-child policy to examine how fertility restrictions affect economic and social outcomes over a lifetime. Using variations in these penalties across provinces and over time, we find that exposure to stricter fertility restrictions when young leads to higher education levels, more white-collar jobs, delayed marriage, and lower fertility rates. Further consequences include lower rates of residing with the elderly and higher household income, consumption, and savings. Finally, exposure to stricter fertility restrictions in early life increases female empowerment. Overall, fertility restrictions imposed when people are young have powerful effects throughout their life cycle.