Knowledge that Transforms

How do income shocks affect armed conflict? Theory suggests two opposite effects. If labour is used to appropriate resources violently, higher wages may lower conflict by reducing labour supplied to appropriation. This is the opportunity cost effect. Alternatively, a rise in contestable income may increase violence by raising gains from appropriation. This is the rapacity effect. Our article exploits exogenous price shocks in international commodity markets and a rich dataset on civil war in Colombia to assess how different income shocks affect conflict. We examine changes in the price of agricultural goods (which are labour intensive) as well as natural resources (which are not). We focus on Colombia's two largest exports, coffee and oil. We find that a sharp fall in coffee prices during the 1990s lowered wages and increased violence differentially in municipalities cultivating more coffee. This is consistent with the coffee shock inducing an opportunity cost effect. In contrast, a rise in oil prices increased both municipal revenue and violence differentially in the oil region. This is consistent with the oil shock inducing a rapacity effect. We also show that this pattern holds in six other agricultural and natural resource sectors, providing evidence that price shocks affect conflict in different directions depending on the type of the commodity.

This article presents a model of information manipulation and political regime change. There is a regime that can be overthrown but only if enough citizens participate in an uprising. Citizens are imperfectly informed about the regime's ability to resist an uprising and the regime can engage in propaganda that, taken at face-value, makes the regime seem stronger than it truly is. This coordination game with endogenous information manipulation has a unique equilibrium and the article gives a complete analytic characterization of the equilibrium's comparative statics. Holding fixed the number of signals available to citizens, if the per-unit signal precision is sufficiently high then the regime is harder to overthrow. In contrast, if the number of signals increases, so that both total signal precision and the regime's costs of manipulation rise together, then the regime is easier to overthrow unless there are strong economies of scale in information control.

Principal--agent models in which the agent has access to private information before a contract is signed are a cornerstone of contract theory. We have conducted an experiment with 720 participants to explore whether the theoretical insights are reflected by the behaviour of subjects in the laboratory and to what extent deviations from standard theory can be explained by social preferences. Investigating settings with both exogenous and endogenous information structures, we find that agency theory is indeed useful to qualitatively predict how variations in the degree of uncertainty affect subjects' behaviour. Regarding the quantitative deviations from standard predictions, our analysis based on several control treatments and quantal response estimations shows that agents' behaviour can be explained by social preferences that are less pronounced than in conventional ultimatum games. Principals' own social preferences are not an important determinant of their behaviour. However, when the principals make contract offers, they anticipate that social preferences affect agents' behaviour. Copyright 2013, Oxford University Press.

I study elections between citizen-candidates who cannot make binding policy commitments before taking office, but who are accountable to voters due to the possibility of re-election. In each period a representative voter chooses among heterogeneous candidates with known policy preferences. The elected candidate chooses the policy to implement, and how much rent-seeking to engage in, when in office. As the voter decides both which candidate to elect and, subsequently, whether the candidate is retained, this framework integrates elements of electoral competition and electoral accountability. I show that, in the best stationary equilibrium, when utility functions are concave over policy, non-median candidates are elected over candidates with policy preferences more closely aligned with the voter. In this equilibrium, there are two candidates who are elected at some history, and the policies these candidates implement in office do not converge. This divergence incentivizes candidates to engage in less rent-seeking, increasing voter welfare. Copyright 2013, Oxford University Press.

This paper analyzes participation and information aggregation in a common-value election with continuous private signals. In equilibrium, some citizens ignore their private information and abstain from voting, in deference to those with higher-quality signals. Even as the number of highly-informed peers grows large, however, citizens with only moderate expertise continue voting, so that voter participation remains at realistic levels (e.g. 50 % or 60%, for simple examples). The precise level of voter turnout, along with the margin of victory, are determined by the distribution of expertise. Improving a voter’s information makes her more willing to vote, consistent with a growing body of empirical evidence, but makes her peers more willing to abstain, providing a new explanation for various empirical patterns of voting. Equilibrium participation is optimal, even though the marginal voter may have very little (e.g. below-average) expertise, and even though non-voters’information is not utilized.

We develop a numerical procedure that facilitates efficient likelihood evaluation in applications involving non-linear and non-Gaussian state-space models. The procedure employs continuous approximations of filtering densities, and delivers unconditionally optimal global approximations of targeted integrands to achieve likelihood approximation. Optimized approximations of targeted integrands are constructed via efficient importance sampling. Resulting likelihood approximations are continuous functions of model parameters, greatly enhancing parameter estimation. We illustrate our procedure in applications to dynamic stochastic general equilibrium models.

Missing values are endemic in the data sets available to econometricians. This paper suggests a semiparametrically efficient likelihood-based approach to deal with general non-ignorable missing data problems for discrete choice models. Our concern is when the dependent variable and/or covariates are unobserved for some sampling units. A supplementary random sample of observations on all covariates may be available. The key insight of this paper is the recognition of non-response as a modification of choice-based (CB) samples. Semiparametrically efficient generalized method of moments (GMM) estimation appropriate for CB samples is then adapted for the non-response framework considered in this paper. Simulation results for various GMM estimators proposed here are very encouraging.

We examine a model of long-term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves. In addition, the realized values are also private information. We characterize a class of environments in which the profit-maximizing long-term contract offered by a monopolist takes an especially simple structure: we derive sufficient conditions on primitives under which the optimal contract consists of a menu of deterministic sequences of static contracts. Within each sequence, higher realized values lead to greater quantity provision; however, an increasing proportion of buyer types are excluded over time, eventually leading to inefficiently early termination of the relationship. Moreover, the menu choices differ by future generosity, with more costly (up front) plans guaranteeing greater quantity provision in the future. Thus, the seller screens process information in the initial period and then progressively screens across realized values so as to reduce the information rents paid in future periods.

We study equilibrium wage and employment dynamics in a class of popular search models with wage posting, in the presence of aggregate productivity shocks. Firms offer and commit to (Markov) contracts, which specify a wage contingent on all payoff-relevant states, but must pay equally all of their workers, who have limited commitment and are free to quit at any time. We find sufficient conditions for the existence and uniqueness of a stochastic search equilibrium in such contracts, which is Rank Preserving [RP]: larger and more productive firms offer more generous contracts to their workers in all states of the world. On the RP equilibrium path, turnover is always efficient as workers always move from less to more productive firms. The resulting stochastic dynamics of firm size provide an intuitive explanation for the empirical finding that large employers have more cyclical job creation (Moscarini and Postel-Vinay, 2012). Finally, computation of RP equilibrium contracts is tractable.

We introduce a simple method for constructing a scoring rule to elicit an agent's belief about a random variable that is incentive compatible irrespective of her risk-preference. The agent receives a fixed prize when her prediction error, defined by a loss function specified in the incentive scheme, is smaller than an independently generated random number and earns a smaller prize otherwise. Adjusting the loss function according to the belief elicitation objective, the scoring rule can be used in a rich assortment of situations. Moreover, the scoring rule can be incentive compatible even when the agent is not an expected utility maximizer. Results from our probability elicitation experiments show that subjects' predictions are closer to the true probability under this scoring rule compared to the quadratic scoring rule.